BERLIN Aug 22 The German economy's surprise
second-quarter contraction was probably due to Russian sanctions
and confidence being eroded by the Ukraine crisis as well as the
comparison with a bumper first quarter, the finance ministry
said on Friday.
Europe's largest economy shrank by 0.2 percent between April
and June after growing 0.7 percent in the first quarter thanks
largely to an unusually mild winter, which boosted construction
activity at the beginning of the year.
"The decline in gross domestic product (GDP) goes beyond the
expected counter-effect to the very strong weather-related
performance in the previous quarter," the finance ministry said
in its monthly report.
"This is likely to have been related to the effect of
sanctions and negative effects on confidence due to the Ukraine
crisis," it said.
After Moscow annexed Crimea in March, Western nations
targeted Russian President Vladimir Putin's closest allies and
businessmen with sanctions and in late July expanded them to
include the energy, banking and defence sectors. Russia has
reacted with restrictions on imports of Western products.
The finance ministry said the uncertainty over the Ukraine
crisis was likely to have contributed to the dampening of
industrial activity in the second quarter.
"If the Ukraine crisis does not escalate further and no
further serious stages of sanctions are imposed, it is to be
expected that the current economic slowdown is only temporary,"
the ministry said, noting that if this was the case, investment
was likely to pick up in the remainder of the year.
It said "other geopolitical tensions" and "weaker economic
development in the euro zone" had also contributed to the
contraction, but the general economic trend remained positive.
The statistics office said last week that investment in
construction and foreign trade had weighed on growth in the
Rainer Sontowski, a German state secretary for economics,
said on Wednesday that Berlin was sticking to its forecast that
the German economy would grow by 1.8 percent this year even
after its disappointing second quarter.
Two sources in Germany's ruling left-right coalition said
the government was keeping a close eye on the economy's
development but there no concerns about it as yet.
The finance ministry said exports, which have traditionally
propelled growth in Germany but have struggled this year and
last, were likely to develop modestly in the rest of the year as
the global economy gradually recovers.
Despite the economic slump in the second quarter, tax
revenues rose by 3.3 percent to 45.4 billion euros ($60.3
billion) in July compared with July last year as Germany's high
employment level boosted income and sales tax revenues.
(Reporting by Michelle Martin; Additional reporting by Matthias
Sobolewski; Editing by Louise Ireland)