German economy grows faster than expected, Italy disappoints

AP News
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Posted: Aug 12, 2016 6:18 AM

BERLIN (AP) — The German economy, Europe's biggest, grew 0.4 percent in the second quarter — a slower pace than in the previous three-month period but better than economists had forecast.

The performance helped the wider 19-country eurozone economy expand 0.3 percent in the second quarter, a figure that was confirmed in a new estimate Friday, as it offset a weaker showing by Italy, which saw no growth at all.

Germany's quarter-on-quarter growth in the April-June period, reported Friday by the Federal Statistical Office, compared with a growth spurt of 0.7 percent in the first quarter of 2016. It was, however, much better than the 0.2 percent pickup that economists had predicted.

The economy was boosted by foreign trade as exports grew while imports declined slightly, the statistics office said. Consumer and government spending also supported growth, but investment — particularly in equipment and construction — was lower following a strong first-quarter showing.

The German economy has seen generally solid growth over recent years while several other countries in Europe struggled. The traditionally export-heavy economy lately has been helped increasingly by domestic demand, with unemployment low.

However, economist Carsten Brzeski at ING-DiBa cautioned that "to sustainably extend the current recovery, or initiate a new cycle, investments will have to pick up."

That, he said, could be complicated by "increased uncertainties after the Brexit vote, continued structural weaknesses in many eurozone countries and a renewed global slowdown." It could require the government to stimulate investment directly or indirectly, he said.

Britain voted to exit the European Union in a referendum June 23, a vote that took place at the end of the second quarter.

Germany's growth contrasted with Italy, the No. 3 economy in the eurozone, which recorded no increase in economic output.

Italy has struggled with weak growth for years. The government of Prime Minister Matteo Renzi has pushed economic reforms aimed at making the economy more business friendly, but with limited success.

The long period of low growth has increased the number of bad loans being carried by banks, stressing the financial system. Low growth this year would also make it harder to reduce the country's heavy debt burden, currently 135 percent of economic output and second in size relative to the economy only to bailed-out Greece.