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German Q2 GDP contracts by less than expected

The German economy contracted by a smaller-than-expected 0.5% in the second quarter of 2008, official data showed on Thursday.

The quarterly decline, which was adjusted for seasonal, calendar and price effects, was the biggest since the first quarter of 2003, when GDP also contracted by 0.5%, the Federal Statistics Office said.

A Reuters poll of 40 economists had pointed to a contraction of 0.8%.

“It's a bit better than expected,” said Goldman Sachs economist Dirk Schumacher. “The exciting question is now whether there will be stabilization in the third quarter.”

“We expect a stabilization, also because oil prices have significantly fallen and the euro has become weaker. That should help. But in the coming quarters we will only see weak growth.”

The Office revised down the first quarter GDP reading to growth of 1.3% after 1.5% previously reported.

“The economic development in the second quarter was marked by declining consumption by private households and diminished plant investment,” the Office said in a statement.

“Construction investment was, in particular, significantly lower than in the first quarter,” it added. “Foreign trade was a positive contributor, which can above all be attributed to a significant fall in imports.”

In the annual comparison, German GDP increased by 3.1% in the April to June period after annual growth of 1.8% in the first quarter of 2008, the figures showed.

Adjusted for working days, Europe's largest economy grew by 1.7% on the year. There were three more working days in the second quarter of 2008 than in the same period in 2007.

Corporate Germany is braced for tough economic conditions. Industrial group Siemens late last month posted stronger-than-expected results for the quarter ended June 30 but expected a slowdown ahead.

Siemens Chief Executive Peter Loescher said: “we have had an excellent quarter but expect to see a flattening dynamism in the coming quarters.”

German tourism and retail group Arcandor on Wednesday cut its 2008/09 outlook after posting a 20% fall in adjusted third-quarter core earnings as losses at its Karstadt department stores widened.

“This reassessment and modification of the earnings target are the result of a changed overall economic situation and, more particularly, of the earnings weakness in the department-store business in Germany,” the company said in a statement.

The government has said it is sticking to its forecast for the economy to grow by 1.7% this year.

The Office is due to publish a breakdown of the second-quarter GDP figures on August 26. (Reuters)