Germany had been helping to drive the economic recovery in Europe
Growth
in the German economy slowed sharply between April and June and was
weaker at the start of the year than previously thought, figures show.
The economy grew by just 0.1% in the quarter, according to
figures from the national statistics office. Growth in the eurozone as a
whole also slowed.
Germany had been driving the economic recovery in the eurozone.
The figures come ahead of a key meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy.
The two leaders will discuss ways to solve the eurozone debt
crisis that has threatened to engulf Italy and Spain and has sparked
turmoil on global stock markets.
Figures also released on Tuesday showed that eurozone
economic growth slowed to 0.2% in the second quarter, down from 0.8% in
the previous three months.
Growth in Spain slowed to 0.2% from 0.3%, while the Italian
economy picked up slightly, growing by 0.3% against 0.1% in the first
quarter.
The weak growth figures are
expected to raise further questions about the strength of the eurozone
economy, particularly in light of figures released last week showing
that French economic growth came to a standstill between April and June.
Growth figures for the rest of the eurozone will be released later.
European markets fell sharply in early trading following the
growth data, with Frankfurt's Dax index down 2.4%, the Cac 40 in Paris
losing 2.2% and London's FTSE 100 falling 1.3%.
Markets had recovered slightly on Friday and Monday from high volatility last week and sharp falls the previous week.
'Serious disappointment'
In addition to the weak second-quarter growth figure, the
estimate for German economic growth in the first quarter of the year was
revised down to 1.3% from a previous estimate of 1.5%.
Germany's statistics office Destatis
said that while exports grew during the second quarter, a sharp rise in
imports "had an altogether negative impact on economic growth".
A fall in household spending also contributed to the drop-off in growth, it said.
"This is a serious disappointment," said Joerg Lueschow at West LB.
"I was surprised that private consumption went down. As a whole, Germany cannot evade the global slowdown.
"This does not provide any positive signs for eurozone GDP. We cannot expect more than stagnation now."
Balanced budgets
Even France, the bloc's second-biggest economy, was drawn into
the crisis last week amid rumours, which were denied on all sides, that
it could lose its top-ranked AAA credit rating.
Reports had suggested the leaders would discuss the possible
introduction of so-called eurobonds - IOUs issued to investors backed by
the bloc as a whole rather than individual countries.
Italy has backed the idea, while billionaire investor George
Soros told the BBC that the bonds could be an effective way of reducing
the borrowing costs of highly-indebted nations.
However, both Berlin and Paris have said eurobonds will not be discussed.
Both French and German leaders, along with the European
Central Bank, are putting pressure on so-called peripheral economies to
extend austerity measures to try to balance their budgets.
Major economies are also making cuts - Italy announced
tougher austerity measures designed to reduce its budget deficit on
Friday, while Spain has also said it will speed up spending cuts.
However, there are fears that spending cuts by governments will undermine overall economic growth.
In an article published in the Financial Times newspaper, the
head of the International Monetary Fund, Christine Lagarde, warned
governments that they must balance spending cuts with measures to
support growth to avoid the risk of a double-dip recession.
Ms Lagarde acknowledged the need for governments to reduce
debt levels, but said "slamming on the brakes too quickly would hurt the
recovery and worsen job prospects".
It could also undermine further the confidence of international investors, she said.
"While [markets] dislike high public debt - and may applaud
sharp fiscal consolidation - they dislike low or negative growth even
more."
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