Germany struggles with low growth

Growth in the eurozone's strongest economy and the Czech Republic's most important trade partner ground practically to a halt in the second quarter, as the global economic slowdown continues and the eurozone sovereign debt crisis rages on.

Germany reported a quarterly GDP growth of just 0.1 percent, below the forecast 0.5 percent growth. Year-on-year growth was 2.8 percent.

"Given Germany's very strong first quarter and ... what [is] happening in the eurozone and in the United States, Germany's growth is still above-average," said Jiří Čáslavka, an analyst at the Prague Global Policy Institute. "However, today's numbers together with French GDP stalling pose downside risks for the eurozone."

France, the eurozone's second-largest economy, saw exactly zero growth in the second quarter, and leaders of the two countries met Aug. 16 to discuss Europe's deepening debt crisis.

Czech GDP increased around 0.2 percent in the second quarter, below forecasts of 0.3 percent growth, partially driven by the slight up-tick in Germany that helped boost exports. Around 30 percent to 40 percent of Czech exports go to Germany, pushing the Czech economy to "basically copy the track of Germany with some delay," said Raiffeisenbank (RB) Chief Economist Pavel Mertlík, meaning the local economy is thus vulnerable to any downturn in Germany.

"Negative contributions were from lower household and government consumption, which caused there to be no change to the previous picture," Mertlík said, leaving RB's GDP growth forecast for the Czech Republic at 1.9 percent for this year.

What will happen in the next quarter is "difficult to say," Mertlík said, though factory orders have been steadily increasing, indicating growth in exports and acceleration of manufacturing activity. But whether that continues largely depends on what the future holds for Germany.

"If German economic activity slows down in Q3 and Q4, we may expect demand to fall for the Czech exports," Čáslavka said.

Slower growth within the eurozone is blamed on the hit to confidence caused by the sovereign debt crisis, but is also indicative of the overall slowdown of global growth, economists say.

"Looking at leading indicators, they are decreasing worldwide, not just in Western countries, so we see a global deceleration, and the European problems are just part of that," Mertlík said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com