Germany drives EU growth past America

Europe's economy outpaced the United States and Japan in the second quarter, EU data showed Thursday, but analysts warned that the German-powered growth would likely lose steam in the second half.

Germany drives EU growth past America
Photo: DPA

The economy in the 16-nation eurozone grew by 1.0 percent between April and June, compared to quarter-on-quarter growth of 0.4 percent in the United States and 0.1 percent in Japan, the European Union’s data agency said.

Europe was pulled up by Germany’s best quarterly performance since reunification in 1990, with growth of 2.2 percent, according to the Eurostat figures, which confirmed a previous estimate.

“The breakdown of Eurozone GDP in the second quarter was relatively encouraging,” said Howard Archer, chief European economist at research group IHS Global Insight.

But, he cautioned, “the eurozone recovery looks likely to lose some momentum over the coming months in the face of serious headwinds.”

The challenges facing Europe include major spending cuts in heavily indebted countries across Europe which will “increasingly” kick in, likely slower global growth and inventory developments becoming less favourable, Archer said.

Clemente De Lucia, an economist French banking group BNP Paribas, said the data “signalled that eurozone recovery strengthened in the second quarter.”

However, he added, “activity will probably lose momentum in the second half of the year.”

Germany’s export-driven economy could feel the pinch from a slowdown in global demand, he said.

“The German locomotive, albeit continuing to outperform its peers, will probably decelerate over the coming quarters,” De Lucia said.

The Eurostat figures showed that the economy of the 27-nation EU, which includes non-euro members Britain and Poland, also grew by 1.0 percent in the second quarter. This compares to growth of 0.3 percent in the first quarter.

Greece was the only nation stuck in recession with an economic contraction of 1.5 percent, as the eurozone member battles to overcome a public deficit and debt crisis with severe spending cuts.

On an annual comparison with the second quarter of 2009, the eurozone economy grew by 1.9 percent in both the eurozone and the wider EU, slightly better than the August previous estimate of 1.7 percent.

The second quarter was marked by a 0.5 percent increase in consumer spending in the eurozone compared to 0.2 perecnt in the previous quarter.

Investments in the single currency area increased by 1.8 percent after a contraction in the first quarter, while exports and imports rose sharply, each by 4.4 percent.

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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.