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German economy to shrink slightly in second quarter - Bundesbank

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German economy to shrink slightly in second quarter - Bundesbank
FILE PHOTO: The new 100 Euro banknote is presented at the headquarters of Germany's Federal reserve Bundesbank in Frankfurt, Germany, May 21, 2019. REUTERS/Kai Pfaffenbach   -   Copyright  KAI PFAFFENBACH(Reuters)
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BERLIN (Reuters) – German economic output will fall slightly in the second quarter, the Bundesbank said on Monday, as one-off effects that underpinned an expansion in the first quarter fade.

Europe’s biggest economy grew by 0.4% from January to March, propelled by higher household spending and a sprightly construction sector.

“The German economy should shrink slightly in the spring,” the central bank said in its monthly report. “Special effects that contributed to a noticeable rise in gross domestic product in the first quarter are either expiring or being reversed.”

The German economy is facing headwinds from trade disputes, uncertainty linked to Britain’s planned departure from the European Union and a cooling world economy, which are hurting its export-dependent manufacturing sector.

Earlier this month the European Central Bank ruled out raising interest rates in the next year and even opened the door to cutting them or buying more bonds as risk factors such as global trade war and Brexit drag the euro zone economy down.

The Bundesbank said that activity in the German construction sector was cooling after mild weather in the winter months boosted activity in the first quarter.

Weakness in the manufacturing sector continues to be a drag on the economy, which is getting growth impetus from a consumption-driven cycle supported by record-low unemployment, low interest rates and rising wages.

“The buoyant forces underpinning the strong domestic-oriented sectors of the economy remain fundamentally intact,” the Bundesbank said. “The dichotomy in the economy will continue.”

(Reporting by Joseph Nasr; Editing by Michelle Martin)

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