September 1, 2014 / 7:17 AM / 3 years ago

UPDATE 1-Weak investment, trade drive Q2 contraction in German economy

(Adds detail, economist)
    BERLIN, Sept 1 (Reuters) - Weak investment spending and slow
trade led Germany to contract for the first time in over a year
in the second quarter, data showed, suggesting Europe's largest
economy is running out of steam just as the impact of the crisis
in Ukraine starts to bite.
    Germany's Federal Statistics Office confirmed on Monday an
earlier estimate showing a 0.2 percent contraction in
seasonally-adjusted gross domestic product (GDP) on the quarter.
    The disappointing performance of an economy once considered
the last bastion of growth in a sickly euro zone echoed the
region's second and third largest economies, France and Italy,
which respectively stagnated and fell back into recession over
the same period.
    "The second-quarter contraction was a reaction to the strong
first quarter so I think we'll return to moderate positive
growth in the third ... but there's no shortage of uncertainty
factors at the moment," said Thilo Heidrich, an economist at
Postbank, referring to the standoff between Moscow and the West
over Ukraine and the crisis in Iraq.
    Gross capital investment in Germany fell by 2.3 percent and
construction investment dropped by 4.2 percent, in part due to a
mild winter which boosted building activity in the first
    Heidrich said a 0.4 percent drop in plant and equipment
spending could be partly due to the Ukraine crisis and sanctions
against Russia.
    Foreign trade, traditionally the driver of German economic
growth, subtracted 0.2 percentage points from growth while
private consumption and inventories made a positive
    "The domestic economy will be responsible for growth this
year and it's possible that exports will suffer a bit more due
to the Ukraine crisis and trade sanctions," said Heidrich.
    The finance ministry has partly blamed the second-quarter
contraction on the Ukraine crisis and sanctions against Russia. 
    Economy Minister Sigmar Gabriel has said GDP will probably
increase in the remainder of 2014. 
    But some economists expect the second-quarter weakness to
carry through into the third quarter, with the Ifo institute
estimating growth will be "close to zero" in the third quarter
while the DIW institute has warned of the danger of recession. 
    Recent data has been mixed, with business and investor
morale souring while industrial orders have tumbled and
joblessness has risen. Exports and output have, however, risen

 (Reporting by Michelle Martin; Editing by Noah Barkin and John
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