The big news from Europe last night was that the German consumer have followed their French neighbours into personal austerity.
German gross domestic product growth slowed more than expected in the second quarter, weighed by a negative trade balance, flagging consumption and weak construction investment, the statistics office said.
Growth dropped to 0.1 percent in seasonally adjusted terms, from a revised 1.3 percent in the first three months of the year, the preliminary data released on Tuesday showed, leading some economists to rethink other forecasts.
With French figures last week showing its economy stagnated in the second quarter, the poor German numbers suggest the 0.3 percent forecast for euro zone growth, due at 0900 GMT, could well be optimistic.
“This is a serious disappointment,” said Joerg Lueschow from West LB. « German, too, cannot evade global slowdown… This does not provide any positive signs for euro zone GDP. We cannot expect more than stagnation now. »
The reading, which compared to a Reuters consensus forecast for a 0.5 percent expansion, was the weakest since the first quarter of 2009, when Germany was still exiting the financial crisis and GDP contracted.
Quarterly growth had been initially reported at 1.5 percent for the first quarter. The statistics office said that data dating back to 1991 had been revised as part of a wide-reaching revision conducted every five years.
The data should also add worry to already fragile markets ahead of a meeting later in the day between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Paris.
Germany, Europe’s largest economy, has been a star performer in the industrialised world since the end of the 2008 financial crisis, and a sharp slowdown in German growth would have repercussions elsewhere in the euro zone.
“While German politicians are currently racking their brains on the pros and cons of common Eurobonds, the luxury of having an economy running at “wonder” speed is fading away,” said ING economist Carsten Brzeski.
Given the level of contraction for the previous quarter I think it is quite probable that Germany has already slipped into contraction, and I will be very surprised if that isn’t the result announced in 3 months time. The GDP data also included a negative trade balance, but on further investigation this seems to be based on higher imports rather than a fall in exports.
I do however expect to see a slowing in export data in the future. With Greece, Portugal, Spain and now Italy inplementing austerity budgeting it seems quite reasonable to expect that this will lower the export potential of the European surplus nations. I have spoken previously about the symbiotic relationship between periphery debt and German surpluses, and if we include the slowdown in the US that potential is even larger.
Given the German numbers the European numbers weren’t too surprising.
European economic growth slowed more than economists forecast in the second quarter as Germany’s recovery almost ground to a halt amid the worsening sovereign- debt crisis.
Gross domestic product in the 17-nation euro area rose 0.2 percent from the first quarter, when it increased 0.8 percent, the European Union’s statistics office in Luxembourg said in a statement today. That’s the worst performance since the euro region emerged from a recession in late 2009.
None of this bodes well for a resolution to the ongoing crisis given that German citizens already seem to be capitulating under the thought of having to carry the rest of Europe, even if that is still only a possibility.
But none of that seems to matter to the Euro-Elite. A quick check of the agenda of Merkel and Sarkozy’s latest meeting and you wouldn’t even know there was a problem.
France and Germany are to adopt a common corporate tax system by 2013, in an effort to signal greater co-ordination of economic policy after confidence in the euro was buffeted by the sovereign debt crisis.
Following a meeting in Paris that coincided with the publication of second-quarter growth figures showing a sharp slowdown in the German economy, President Nicolas Sarkozy of France and Angela Merkel, the German chancellor, pledged to back the common currency.
“Germany and France feel absolutely determined to strengthen the euro as our common currency and further develop it,” Ms Merkel said.
In the most concrete of their proposals, the French and German finance ministries will draw up plans early next year to introduce a common corporate tax base and rate for the two countries to take effect from 2013.
Ms Merkel and Mr Sarkozy were meeting as gloom over the future of the eurozone was intensified by a sharp slowdown in Germany’s economy, which came to a near standstill in the second quarter.
…In Paris, Mr Sarkozy said France and Germany would also come up with a joint proposal for a financial transaction tax next month, although he did not say if and when they would adopt it.
The French and German leaders poured cold water on the idea of common eurozone bond issuance as a definitive solution to the debt crisis. “One day, perhaps,” Mr Sarkozy said. “But at the end of a process of European integration, not at the beginning”.
In a galaxy far, far away no doubt. Looks like some more baby steps to fiscal union but at the same snail’s pace that has been the Achilles Heal of the euro for eighteen months. A very much doubt markets will wait.