San Francisco Frontiers - Stagnant German growth clouds eurozone economy

Germany's gross domestic product (GDP) stagnated between April and June, while inflation remained high, according to the federal statistics agency Destatis.

The figure was worse than expected by many observers, with the analysts surveyed by the financial data firm FactSet betting on a 0.3-percent rebound.

It followed two quarters around the turn of the year in which German output shrunk, sending Europe's largest economy into recession.

While zero growth in the second quarter means the German economy has technically exited recession, Friday's figures were preliminary and could still be revised down when final data is published later.

The limp performance will do little to quell doubts about the state of the German economy, which was hit hard by the Russian invasion of Ukraine and the ensuing sharp rise in energy prices.

The disappointing result put Germany behind eurozone peers France and Spain, which both reported positive figures in the second quarter.

The French economy -- the eurozone's second biggest -- posted a surprise 0.5 percent rise in GDP. Spanish growth came in at 0.4 percent, slower than in the previous quarter, but still better than expected.

But the smaller Austrian economy fared even worse than Germany, shrinking 0.4 percent in the second quarter.

The European Union's statistics agency is due to publish growth data for the whole eurozone on Monday.

- 'Twilight zone' -

Germany "seems to be stuck in the twilight zone between stagnation and recession", said Carsten Brzeski, head of macro at ING bank.

After shrinking by 0.4 percent in the last quarter of 2022 and 0.1 percent over the first three months of 2023, the German economy looked in a dismal state.

Output was 0.2 percent smaller in the second quarter of 2023 than it was a year ago, according to calendar-adjusted figures from Destatis.

Germany's winter recession coincided with a contraction in the eurozone as a whole. But while the currency bloc was expected to bounce back in most places, Germany's struggles looked set to continue.

"For the third quarter, the overall signs are pointing to contraction again," said Jens-Oliver Niklasch of LBBW bank.

"In all probability, a negative result for GDP growth will be recorded for 2023 as a whole."

In France, the strong showing came despite a fall in household consumption. The result was boosted by exports, the manufacturing industry and energy production.

The robust growth is a boon for President Emmanuel Macron's government at a time of multiple domestic political challenges.

Economy Minister Bruno Le Maire told RTL the performance as "remarkable".

The slight dip in Spanish growth -- 0.4 percent in the second quarter, down from a revised 0.5 percent increase seen in the first three months of the year -- was due in part to the poor performance of the country's drought-hit agriculture sector.

I.Rodriguez--SFF