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Germany and France hold steady, but don't grow much

A woman looks into the window of a store advertising summer sales on August 1, 2012 in Berlin, Germany.

Jeff Horwich: Happiness is relative in Europe these days: Investors are cheering news the euro area's top economies did not turn in the abysmal results many had expected. Instead, things are just "garden-variety" bad: France's economy did not shrink in the second-quarter. Quite the contrary, France posted a growth rate of zero. German GDP grew at the brisk pace of 0.3 percent.

Christopher Werth is watching things for us from London. Hello Christopher.

Christopher Werth: Hey, good morning.

Horwich: Much of the slowdown in Germany is attributed to exports. What are the key trends there?

Werth: Germany is a big exporter. But many of the goods Germany produces go to the euro zone itself – it’s about 40 percent of its overall exports – where no one has any money to buy anything. So, that’s where Germany gets into a little bit of trouble. Germany has made up the difference by exporting to China. But we’re also seeing growth slow there.

Horwich: Is slower growth in Germany going to affect the policy landscape there?

Werth: It could. You know, I was in Germany not long ago, and you get a real sense that people haven’t been feeling the crisis in Germany. I stopped one guy in the street and he said, "I read about the crisis in the newspapers but I’m not feeling it.” That may explain why you don’t see a real sense of urgency among German leaders to tackle the euro zone crisis. That could change if Germany can no longer avoid getting sucked into this recessionary spiral that the rest of the euro zone is in.

I spoke to Christian Schultz at Germany’s Berenberg Bank.

Christian Schultz: Clearly all the sentiment indicators -- economic confidence in Germany -- are turning south. And that is going to have an increasing negative impact on German growth. And the government knows this and will step up the response.

Horwich: And Christopher, by a hair, today’s numbers allows France to escape an officially declared recession but things are clearly dire there. What are the main French challenges?

Werth: Well yeah, the French economy had been expected to contract by three tenths of a percent. It beat those forecasts with an uptick in investments and exports but economists say it can only escape that for so long. French businesses are really struggling to compete globally and within the euro zone. We see Peugeot, for instances, French carmakers are really struggling to make money -- Peugeot is actually losing money -- and that can be indicative of the French economy overall. We see the problems of the southern part of the euro zone creeping up ever further northward to its stronger members.

Horwich: Christopher Werth in London. Thank you.

Werth: Thanks Jeff.

 

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