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German economy: GDP shrinks in the second quarter as trade slows

GDP for the three months ended June contracted 0.1% compared to the previous quarter, in line with analyst expectations. That's down from 0.4% growth in the first three months of the year.

"Today's GDP report definitely marks the end of a golden decade for the German economy," said Carsten Brzeski, chief economist in Germany at the Dutch bank ING.

The world's fourth largest economy, and Europe's largest, has been described as having a "perfect storm" of negative factors.
Germany relies heavily on exporting goods to China and the United States United States, which are locked in a bitter trade dispute. Weak global auto sales have

A challenging backdrop

The German economy has helped support growth in Europe global financial crisis.

But industrial output for June dropped over 5% compared to the previous year. And the ZEW indicator of economic sentiment for August plunged sharply, hitting its lowest level since December 201


Brzeski said the uncertain climate was a top negative factor. "He said."

Another core issue is the global decline in demand for cars – especially in China, where new car sales have dropped 13 months in a row. Daimler [ DDAIF ) and [Volkswagen VLKAF )
It's especially damaging at a moment when Germany's automakers have to make big investments to Oliver Rookie, chief economist at Oxford Economics.

Throw Brexit into the mix, and the outlook for Germany's economy looks grim. Even so, Rakau said he expects a return to "modest" growth in the current quarter, helped by "resilient" domestic demand.

"The main question really is how to export and industry are going to fare," he said. 19659002]

What happens next

The weak data bolsters the case for the German government to spend more next year, Rakau said. But that's not true in a country that's notoriously wary about borrowing.

The government could face more pressure to intervene if the trade was between the United States and China drags on.

The Trump administration said Monday it would delay tariffs on some consumer goods exported from China, including cell phones, toys and video game consoles. But both sides look no further. September 2009.

Germany's contracting economy bolsters the case for the European Central Bank to take action when it meets in September.

Economists predict that the central bank wants move to cut interest rates, which are already at historic lows. The ECB is thus expected to signal a bond buying program designed to track economic growth.

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