RTTNews - The German economy recovered from the worst recession since the Second World War on strong government and household spending.

The Federal Statistical Office report, released on Tuesday, showed that the largest Eurozone economy grew slightly for the first time, following four quarter-on-quarter decreases in a row. The economy expanded 0.3% sequentially in the second quarter, after contracting 3.5% in the first quarter.

Economic growth was driven by a 0.7% rise in household spending and a 0.4% increase in government final consumption expenditure in the second quarter. Private consumption benefited from the scrapping incentive for old cars.

Capital formation in construction also supported the growth, which moved up 1.4%, while investment in machinery and equipment showed signs of stabilization at a low level. Meanwhile, economic growth was hurt by a massive reduction of inventories.

Further, the decrease in price adjusted imports was larger than that of exports in the second quarter, helping export surplus to contribute 1.6 percentages to GDP growth.

The German government led by Chancellor Angela Merkel has been pouring billions of euros to shore up the recession-hit economy.

In contrast to sequential growth, the price-adjusted GDP was considerably lower than a year ago. GDP was down 7.1% in the second quarter, the largest annual decrease since quarterly GDP data were first produced in 1970, the statistical office said. On a working day adjusted basis, GDP slipped 5.9% versus first quarter's 6.7% decrease.

The statistical office confirmed the initial estimate for the second quarter GDP released on August 13.

The performance of the various economic sectors was markedly lower than in the same period of prior year, except for other service activities. Gross value added in the industry was down 23.6%, economic performance in trade, transport and communications decreased 6.9% and that in financial, real estate, renting and business activities slipped 1.8%.

The global crisis impaired foreign demand for German goods and services. Exports were down 20.5% from last year, which was larger than the first quarter fall. Imports also showed a downward trend. Decrease in imports was less marked than the negative trend of exports. Thus, the balance of exports and imports made a negative contribution of 4.8 percentage points.

According to the detailed report, economic performance was achieved by around 40.2 million persons in employment, down 25,000 persons over a year earlier. Meanwhile, overall labor productivity fell 7.1%.

Commerzbank analyst Ralph Solveen noted that the increase in investments in construction was possibly due to the additional infrastructure investments financed with funds from both economic stimulus packages.

Although, these impulses are only temporary, the present trend in exports and investments in plant and equipment gives hope of a sustainable turnaround, the analyst said. Both components registered decreases in the prior quarter, but smaller than before signaling the situation is likely to have at least stabilized over the second quarter, he added. The analyst sees a quarterly expansion of 0.8% for both the third and fourth quarter of 2009.

Giving positive signals of an early recovery in the single-currency area, the euro area shrank 0.1% sequentially in the second quarter, which was much slower than the record 2.5% decline seen in the first quarter.

For comments and feedback: contact editorial@rttnews.com