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German Economy May Shrink in the Second Quarter

Reuters
Tuesday, 24 Jun 2008 | 6:56 AM ET

Germany may report a shrinking in its economy for the second quarter of this year and stagnation would probably be a positive outcome, Deputy Economy Minister Walther Otremba said on Tuesday.

"After the 1.5 percent in the first quarter -- that was a statistical effect, it didn't really have anything to do with the underlying economic development -- nil (growth) probably would be a good result for the second quarter," he told reporters in Berlin. "It may even be negative."

The remarks follow a prediction by the Bundesbank in its latest monthly report that Europe's largest economy was heading for contraction during the April-June period.

Otremba said the strong euro was helping to dampen surging energy costs but that on balance, the currency's strength was more negative for the German economy.

German GDP growth in the January-March period was the strongest quarterly expansion since 1996. However, the figure was boosted by a pick-up in construction activity spurred by mild winter weather, and a build-up in firms' inventories.

Manufacturing orders in Germany have declined for five consecutive months and leading indicators have pointed to a slowdown in momentum, prompting a number of analysts to forecast the economy would contract in the second quarter.

Contact Europe: Economy

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