Global tension weighs on German economy

Frankfurt - The German economy likely stagnated during the second quarter as international tensions weighed on the country's industrial sector, the nation's central bank said Monday.

"Industry shifted into a lower gear," the Bundesbank said in its monthly report.

The Frankfurt-based bank pointed to the global uncertainty unleashed by tensions in the Middle East and Ukraine, along with public holidays that shorted the working week, as undercutting the performance of Europe's biggest economy in the three months to the end of June.

"Along with calendar effects, increased geopolitical tensions are likely to have played a role," the Bundesbank wrote.

Also acting as a drag on the economy was the building industry, which slowed in the second quarter after it picked up strongly in the opening months thanks to relatively mild winter weather.

"Considering that the service sector is likely continued to expand, the real, adjusted gross domestic product (in Germany) was likely unchanged from the first quarter," the Bundesbank said.

The bank did not provide any new figures on the outlook for German gross domestic product (GDP). It currently expects German economic growth to come in at 1.9% this year compared with the 1.7% it forecast in December.

German GDP grew by 0.8% in the first quarter compared with the final three months of last year, which was its strongest gain since 2011. Second-quarter German GDP data are to be released by the Federal Statistics Office on August 14.

The Bundesbank's warning about a stagnating in Germany follows the release of a slew of indicators pointing to GDP losing momentum in recent months.

While exports slumped 1.1% in May from April, imports recorded their biggest fall in about 18 months. At the same time, industrial production posted its biggest fall in nearly two years in May.

Factory orders were down 1.7%.

Confidence among investors and analysts in July slumped to its lowest level since December 2012, the Mannheim-based Centre for European Economic Research (ZEW) said monthly survey released last week showed.

This is likely to pave the way for a decline in the Munich-based Ifo institute's closely watched business confidence that is to be released on Friday, analysts predict.

Many economists see domestic demand underpinned by solid consumer spending and higher wages emerging as a key driving force behind German GDP this year.

In an interview with the weekly magazine Der Spiegel published Monday Bundesbank chief economist Jens Ulbrich said low inflation combined with low unemployment meant that there was also room for pay rises after a long period of wage restraint in the country.

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