German Economy Unexpectedly Shrinks, Inflation Ticks Higher

• The German economy unexpectedly contracted in the second quarter after skirting a recession at the beginning of the year. July's inflation rose, showing the continuing struggles of the euro zone's biggest economy.
• Germany's gross domestic product contracted by 0.1% in the second quarter compared with the previous three-month period, preliminary data from the statistics office showed on Tuesday. Analysts polled by Reuters had forecast a 0.1% quarter-on-quarter increase in adjusted terms, following 0.2% economic growth in the first quarter.
• Germany was the worst-performing major economy last year, with gross domestic product contracting by 0.3%, and it came close to recession at the start of 2024 - buffeted by a combination of cyclical and structural headwinds. In the second quarter, Germany was a laggard among its peers again. While the German economy contracted, France and Spain did better than expected and Italy held its ground.
• "While German data is stagflationary, the eurozone as a whole provides a picture of a relatively solid but potentially fading recovery with sticky inflation," said Carsten Brzeski, global head of macro at ING. The euro zone's economy grew 0.3% in the three months to June, data showed on Tuesday.
• Also countering expectations, German inflation rose in July to 2.6%, preliminary data from the Federal Statistics Office showed on Tuesday. Analysts polled by Reuters had forecast no change to the inflation rate after consumer prices rose by 2.5% on the year in June.
• Core inflation, which excludes volatile food and energy prices, was at 2.9% in July, unchanged from the previous month. This is primarily due to the continued strong inflation in services, which remained unchanged at 3.9% in July, as high wage increases still push prices up.

(Source: Reuters)