German economy shrinks in Q2 as exports fall on weak demand, trade disputes

The German economy shrank in the second quarter, dragged down by a slump in exports, data showed on Wednesday, as manufacturers in Europe's largest economy struggle against weaker foreign demand and trade disputes. 

Gross domestic product (GDP) fell 0.1% quarter-on-quarter after a confirmed growth rate of 0.4% in the first three months of the year, the Federal Statistics Office said.

The preliminary reading for April-June was in line with a Reuters poll of analysts.

The annual growth rate slowed to 0.4% in the second quarter from 0.7% in the first, calendar-adjusted data showed. That beat the poll forecast of +0.1%.

"The development of foreign trade slowed down economic growth because exports recorded a stronger quarter-on-quarter decrease than imports," the statistics office said.

Positive contributions came from domestic demand as household consumption, government expenditure and gross fixed capital formation increased on the quarter, the office said. 

Construction declined in the second quarter after the sector pushed up overall growth in the first three months due to an unusually mild winter, the data showed.

"For a year now, the German economy has been only crawling forward," Unicredit analyst Andreas Rees said, adding there was hardly any improvement in sight for the second half of 2019 as there were many uncertainties for German exporters.

"Besides Brexit, this is above all the U.S.-Sino trade dispute and possible U.S. tariffs on European cars," Rees said.

Following release of the data, the yield on Germany's benchmark 10-year government bond dropped to a record low of -0.623%.