UPDATE 3-Trade boost may not save German economy from Q2 contraction

Fri Aug 8, 2014 5:59am EDT

Related Topics

* Exports and imports rise more than forecast

* Some economists see economy contracting in Q2

* Russian crisis not hitting Germany too hard yet (Adds comment from BGA trade association)

By Michelle Martin

BERLIN, Aug 8 (Reuters) - German exports and imports rebounded in June, suggesting the West's standoff with Russia over Ukraine is not seriously hurting Europe's largest economy but failing to dispel concerns of a contraction in the second quarter.

Data from the Federal Statistics Office showed seasonally adjusted imports rose by 4.5 percent in June, their strongest month-on-month increase since November 2010 and a bounceback from a sharp drop in May.

Exports rose by 0.9 percent, nearly double the rate expected by economists in a Reuters poll.

For the second quarter as a whole, the figures showed exports increasing marginally compared to the first three months of the year and imports falling.

But even with a marginal boost from trade, some economists see a chance of a contraction in gross domestic product (GDP) when data for the second quarter is released next Thursday, and trade groups are warning of further trouble from the escalating showdown with Russia.

"Despite the positive result in the first half of the year we are alarmed by the escalation of the trade conflict with Russia," said Anton Boerner, head of the BGA trade association, which represents around 120,000 wholesalers, exporters and service providers.

"Conflicts in the Middle East are also overshadowing the global economy and therefore weighing on German exports."

According to a Reuters poll, the preliminary GDP data is expected to show the economy stagnated in the second quarter after powering ahead in early 2014 due to mild weather.

But a growing chorus of economists is now predicting that the economy could actually contract for the first time since late 2012.

Other data this week has disappointed, with industrial orders suffering their sharpest fall in nearly three years due to weak euro zone demand and below-average bulk orders, and output undershooting forecasts with only a modest rise.

"(Trade) is unlikely to fully offset the very weak industrial output data ... meaning that German GDP is likely to have contracted slightly in the second quarter," said Christian Schulz, senior economist at Berenberg Bank.

Carsten Brzeski, senior economist at ING, said net exports were probably the only growth driver in the second quarter.

RUSSIAN STANDOFF

On Thursday Russia banned many Western food imports in response to economic sanctions unveiled by the United States and Europe over Moscow's support for rebels in eastern Ukraine.

Russian exports, which make up about 3.3 percent of total German exports, fell by around 15 percent in the first five months of 2014 compared with the same period last year.

About 10 percent of exporting firms in Germany ship their goods to Russia and some of them, including defence firm Rheinmetall and generic drugmaker Stada warned this week about a hit to business from the standoff between the West and Moscow.

Some German firms have complained of weak demand in other overseas regions too. Beiersdorf, makers of Nivea skin cream, said on Thursday that growth in emerging markets was stuttering. Truck maker MAN has pointed to falling orders in major South American markets.

A breakdown of unadjusted data showed exports to the euro zone climbed by 0.3 percent in June compared to the same period last year, while exports to countries outside of Europe were down 0.9 percent.

Germany's trade surplus narrowed to 16.2 billion euros from 18.8 billion the previous month. The consensus forecast in a Reuters poll had been for it to shrink to 17.5 billion euros. (Reporting by Michelle Martin; Editing by Noah Barkin)

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