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February 2, 2023

Germany’s economy on hold in Q2

Merkel and Sarkozy meet in Paris.

Germany made public the data for its gross domestic product (GDP) in the second quarter, showing that economic growth in Europe’s largest economy slowed to a near stand-still, Forbes informs. Markets retreated on the troubling signal. The DAX fell 147 points, or 2.4 per cent, after the open Tuesday, and U.S. markets seemed ready to erase some of the gains won in Monday’s merger activity. Futures were down on the major indexes ahead of the bell. The S&P 500 was down 12 points at 1,185, the Nasdaq was down 24 points at 2,182 and the Dow Jones industrial average was down 81 points at 11,322.

Germany’s GDP increased by only 0.1 pc from the first quarter to the second quarter this year, according to a report released by the Federal Statistics Office in Wiesbaden. After a revised 1.3 pc jump from the previous quarter, GDP growth appears to have stagnated.

Rates on German and U.S. government bonds did not change, as demand remained high. The yield on the 10-year German bund was 2.29 per cent, while the 10-year U.S. Treasury bill held at 2.28 per cent. The dollar strengthened slightly against the euro, which fell 0.4 per cent to 1.4385. Gold is stronger, up 1.3 per cent at USD 1,780 an ounce. Bucharest Stock Exchange (BVB) fell by 0.37 pc Tuesday in a market where few investors present at the transaction did not react to the data on the evolution of GDP in Romania, but were influenced by external grants in negative territory re-entry.

The sour economic news sets a more urgent tone for the political discussions about the European Union’s role in resolving a worsening debt crisis in Europe.

French President Nicolas Sarkozy and German Chancellor Angela Merkel were due to meet in Paris later yesterday to discuss strategies to act to offset what is looking like a widespread economic slowdown across the European region. One of the possibilities raised this week to alleviate a wave of defaults – the issuance of euro bonds – is still officially considered untenable by Germany.

The question of a euro bond may present a difficult challenge to Merkel, who may face a rift in her coalition that couples the leading liberal party with and her Christlich Demokratische Union (CDU). Some say that if the Free Democrats, who are opposed to a euro bond, dissent from a decision to create the euro bond in an effort to save the eurozone’s currency, the consequences could be a great political risk for Merkel’s power in the Bundestag.

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