German economy expands less than forecast as global risks loom

FRANKFURT (BLOOMBERG) - Germany's economy expanded less than forecast last quarter as turmoil in Greece and a slowdown in China sapped global demand.

German gross domestic product rose 0.4 per cent in the three months ended June 30, after increasing 0.3 per cent in the previous quarter, the Federal Statistics Office in Wiesbaden said on Friday. Analysts surveyed by Bloomberg News predicted an expansion of 0.5 per cent. France's economy stagnated last quarter after growing a revised 0.7 per cent in the January-March period, separate data showed earlier.

While German domestic spending is boosted by record-low unemployment and interest rates, its role as Europe's largest exporter leaves it exposed to stumbles in the global economy. The euro-area recovery is fragile and uneven, and China, Germany's third-largest trading partner, is struggling to stem its own slowdown.

"Exports are a key pillar for the German economy and global demand is currently too low to sustain it at full speed," said Johannes Gareis, an economist at Natixis SA in Frankfurt. "But the German economy finds itself generally in a comfortable situation and in fact it is set to profit from increasing tailwinds in the coming months."

Euro-area GDP probably expanded 0.4 per cent in the second quarter after growing at the same pace in the previous three months, according to a separate survey. That report is due later Friday..

Spain's GDP increased 1 per cent in the second quarter, the fastest pace in more than 8 years, data showed on July 30.

Greece, which imposed capital controls and came close to leaving the currency bloc during a standoff with creditors this year, said on Thursday that its GDP expanded 0.8 per cent in the second quarter. The surprise surge, led by consumer spending and tourism, is seen by analysts as a blip amid a crumbling economy.

European Central Bank policy makers meeting in mid-July called the euro area's recovery "disappointing" and said risks are still to the downside, according to a summary of the discussions published on Thursday. They signaled that the central bank's 1.1 trillion-euro (S$1.72 trillion) asset-purchase program could be adjusted to provide more stimulus if needed.

The International Monetary Fund last month cut its forecast for global growth, singling out financial-market turbulence in China and Greece. China sent shock waves through global markets on Tuesday by devaluing the yuan.

Still, the Bundesbank said in July that the German economy is supported by strong consumption and wage increases. Factory orders point to a manufacturing revival in coming months.

"Germany's fundamentals remain solid and it is in a position to look through the volatility," said Andreas Rees, an economist at UniCredit SpA in Frankfurt. "Its economy is driven by both exports and internal demand and this means that as long as the euro area continues to recover, there shouldn't be a problem."