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German Chancellor Angela Merkel arrives for the weekly German government cabinet meeting on Aug.31, 2011 in Berlin, Germany. (Sean Gallup/Getty Images/Sean Gallup/Getty Images)
German Chancellor Angela Merkel arrives for the weekly German government cabinet meeting on Aug.31, 2011 in Berlin, Germany. (Sean Gallup/Getty Images/Sean Gallup/Getty Images)


German nuclear exit slows growth Add to ...

Germany’s decision to exit nuclear power weighed on growth in the second quarter, with energy imports rising sharply to compensate for an abrupt drop in domestic generating capacity following the government’s policy U-turn.

Quarterly gross domestic product growth slowed to 0.1 per cent, Thursday’s data from the Statistics Office showed, confirming initial estimates that dented expectations that strength in Europe’s leading economy will continue to underpin the region’s fragile recovery.

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Adding to evidence the outlook is darkening for German growth, the export-geared country’s manufacturing activity expanded at its slowest pace in almost two years in August, separate PMI data showed.

Imports overtook exports in the second quarter, driven by a sudden need for power from abroad and yielding a trade gap that knocked 0.3 percentage points off the overall growth figure.

“A noticeable effect was felt by the German nuclear exit – power was hardly exported and stronger imports were necessary in order to meet demand,” the office said.

In the wake of March’s disaster at the Fukushima plant in Japan, Chancellor Angela Merkel shut down eight of Germany’s nuclear power generators and said all its remaining nuclear capacity would be taken off the grid by 2022.

The eight already shut down represent over 8,000 megawatts of generating capacity, leaving the country’s current total nuclear capacity at under 13,000 megawatts – a huge gap compared to before the policy shift.

Industry and the country’s neighbours had feared the abrupt change of course could imperil the domestic power supply as well as increasing energy costs, and utility RWE saw its first-half core net profit fall 40 per cent.

Germany’s economy has been a star performer in the industrialized world since the end of the 2008 financial crisis and has underpinned growth across the euro zone.

But doubts have grown about how much longer it can sustain its expansion in light of an expected slowdown in key markets abroad, and Thursday’s data suggested domestic consumers were a long way from taking up the slack.

Private consumption fell 0.7 per cent in the quarter, registering the first drop since the fourth quarter of 2009. That meant that despite rising investment, overall consumption knocked 0.3 percentage points off growth.

“High inflation probably dampened peoples’ desire to buy,” said Torge Middendorf from Westlb. “Insecurity over the (euro zone) debt crisis has probably also contributed. It could even get more pronounced because there is no quick solution in sight.”

In August, German business morale fell at its fastest rate since the aftermath of the Lehman Brothers collapse in late 2008, a survey by the Ifo economic think tank showed.

The survey, the closely most watched measure of expectations for German economic activity, suggested the slowdown could be more marked than many economists had thought.

The labour market, one of the cornerstones of Germany’s success, could also soon feel the effects of a slowdown, with data on Wednesday showing the rate of decline in German unemployment slowed in August.

Consumer sentiment however fell for a third month in a row going into September, and other data released on Wednesday showed retail sales did not grow at all in July in real terms.

But some economists remain upbeat about the coming months and feel the second quarter was a one-off. Andreas Rees from Unicredit predicts 0.5 per cent growth in the July-September period.

“There were other special effects such as the fall in construction spending which should be recuperated in the second half,” he said. “In addition, there is a good chance private consumption will pick up noticeably.”



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