Germany leads euro zone growth slump

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Germany leads euro zone growth slump

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Euro zone growth slowed in the second quarter as the region’s two economic engines lost speed.

The 17 nation single currency area’s GDP increased by 0.2 percent on a quarterly basis, well below first quarter growth of 0.8 percent.

After the global financial crisis, the euro zone’s two top economies France and Germany led growth. This decline in the growth rate is increasing anxiety amid the debt problems.

Industrial powerhouse Germany’s GDP increased by only 0.1 percent while France’s economy stagnated. Growth in the euro zone’s troubled large economies Italy and Spain was also sluggish.

With little or no growth, debt-cutting targets are even harder to hit as tax revenues shrink and welfare payments rise.

And the figures hit the markets which were already worried about the financial situation.

“There were already a couple of investors very much concerned about the economic situation in the world but everybody was expecting that Germany would have a very good year. So we are really deeply surprised and concerned about the German GDP figures and that is what the market shows,” says analyst Oliver Roth of Close Brothers Seydler in Frankfurt.

The contagion risk from smaller economies like Greece, Ireland and Portugal to bigger economies is increasing the fears. Now with poor growth figures across the euro zone, a second recession is considered to be a possibility among many economy watchers.

This increases the pressure on politicians to solve their economic problems while keeping growth intact, a difficult trick to pull off.