The German economy, Europe's largest, almost stalled in the second quarter as the region's sovereign debt crisis weighed on confidence.
Gross domestic product, adjusted for seasonal effects, rose 0.1 percent from the first quarter, when it jumped a revised 1.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists had forecast growth of 0.5 percent, according to the median of 33 estimates in a Bloomberg News survey. From a year earlier, GDP increased 2.8 percent.
Germany has been powering euro-area growth as the debt crisis curbs spending across the region. The worse-than-expected GDP data add to signs Europe is flirting with a renewed economic slump. France's recovery unexpectedly ground to a halt in the second quarter, Italian and Spanish expansion remained sluggish and Greece's economy contracted.
EURUSD fell 50 points after the release as the disappointing German data only added to the anxiety surrounding today's summit between French President Nicolas Sarkozy and German Chancellor Angela Merkel. The market is looking for Ms. Merkel to offer greater support for an expansion of the EFSF and ultimately to perhaps even back the idea of a common Eurobond.
Today's weak economic data may make it even more politically difficult for Ms. Merkel to commit German resources for the common good of Europe. Nevertheless, the two leaders clearly realize that a more unified approach is necessary in order to combat the assault of the shorts on the regions various credit markets and if today's meeting culminates in some sort of announcement that hints at a move towards more fiscal unification the EUR/USD could recover its losses.
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.