* Seasonally adjusted exports fall by 2.6 pct in July
* Imports also down, narrowing German trade surplus
* Weak data points to cooling of Europe’s biggest economy
* Debate about more investment to support growth (Adds details on trade surplus, Schaeuble, BGA trade body)
By Michael Nienaber
BERLIN, Sept 9 (Reuters) - German exports plunged unexpectedly in July, posting their steepest drop in nearly a year, while imports also edged down, suggesting Europe’s biggest economy started the third quarter on a weak footing.
“The second half of the year begins with a crash landing of foreign trade,” BGA trade association head Anton Boerner said, adding that an unusual high number of risks and crises around the globe was increasing uncertainty and hampering investments.
The poor performance narrowed the seasonally adjusted trade surplus to 19.4 billion euros ($21.9 billion), data from the Federal Statistics Office showed, with a particularly large decline in exports to countries outside the EU like China.
This marked the fourth month in a row of a shrinking surplus, something not seen since 1992, and indicated that Germany’s shift towards a more domestically driven economy could lead to smaller trade surpluses in the medium term.
Still, Finance Minister Wolfgang Schaeuble rejected a recent suggestion by European Central Bank President Mario Draghi that Germany should do more to boost domestic demand, increase imports and reduce its trade surplus.
The feeble trade figures followed economic data this week that painted a gloomy picture for German manufacturing, with industrial orders barely rising and output falling the most in nearly two years.
“The month of July was clearly not a good month for Germany,” ING economist Carsten Brzeski said, adding that the surprisingly weak trade figures exacerbated growth concerns.
“A further cooling of the economy in the months ahead should give more support to just-started discussions about fiscal stimulus,” Brzeski said.
Seasonally adjusted exports fell 2.6 percent on the month, the data showed. This undershot the Reuters consensus forecast of a 0.25 percent increase. Imports edged down 0.7 percent which was also weaker than the predicted 0.8 percent rise.
Commerzbank economist Ralph Solveen said the steep drop in exports partly reflected special factors such as more holidays falling in July.
“However, exports certainly won’t be the driver of the German economy in the coming months,” Solveen said. “There is the sluggish global economy and the effects from the weaker euro are also fading.”
A breakdown of unadjusted trade figures showed that demand for German goods from countries outside the EU dropped the most, with exports to so-called third countries, which includes the United States, Japan and China, plunging by 13.8 percent.
German exports to EU countries outside the euro zone, which includes Britain, dropped by 8.8 percent.
The government expects domestic demand to be the sole driver of economic growth this year, with an estimated expansion rate of 1.7 percent. For 2017, it predicts a slowdown to 1.5 percent.
The DIW institute gave a more pessimistic outlook on Thursday, predicting German economic growth to nearly halve in 2017 as Brexit and other risks hit exporters.
Despite the possibility of a longer-term decline in surpluses, in the first seven months of 2016, Germany’s unadjusted trade surplus rose to 149.9 billion euros, slightly above last year’s level of 148.2 billion euros. In 2015 as a whole, Germany posted a record surplus of 247.9 billion euros.
The Munich-based Ifo economic institute has said the wider measure of Germany’s current account would probably hit a new record surplus this year, overtaking that of China again to become the world’s largest.
Speaking in Bratislava, Schaeuble blamed the ECB for Germany’s trade surplus, saying the central bank’s loose monetary policy has led to a weaker euro which in turn boosts German exports.
The veteran conservative, an ally of Chancellor Angela Merkel, also dismissed Draghi’s suggestion that Germany should use fiscal room to decrease its export surplus.
Still, Schaeuble has promised tax cuts of around 15 billion euros for low- and middle-income households, which is likely to support private consumption.
The Social Democrats, coalition partners of Merkel’s ruling conservatives, have made increasing investment a centrepiece of their election campaign a year before the federal vote.
$1 = 0.8867 euros Reporting by Michael Nienaber in Berlin; Additional reporting by Shadia Nasralla in Bratislava; Editing by Toby Chopra