MORE BAD news on the German economy helped drive the euro to a six-month low against the dollar yesterday and pushed short-dated European government bond yields to their lowest for three months.
By contrast, US treasury bond yields edged up and Wall Street stocks inched higher after some better news on the US economy. The moves came against a backdrop of renewed volatility in oil prices.
The closely-watched Ifo German business climate index dropped to a three-year low of 94.8 in August from 97.5. Meanwhile, the GfK index of consumer confidence in the euro zone's most important economy fell to its lowest in five years. Detailed German GDP data were also published, which showed that consumption was very weak.
The Federal Statistics Office said Europe's largest economy contracted by 0.5 per cent quarter on quarter in the April-June period, in line with a preliminary estimate published earlier in August. On an annual basis, growth totalled 3.1 per cent.
"We could fall into stagnation. A recession can also not be ruled out," said Jens-Oliver Niklasch, analyst at LBBW. A number of leading economists have said the economy could contract again in the third quarter - a scenario that would put the economy in recession. A recession is commonly defined as two or more consecutive quarters of negative growth.
The second-quarter contraction was led by a drop in private consumption, which shaved 0.4 percentage points from the quarterly growth total, the office said.
Gross capital investment also subtracted 0.4 percentage points from GDP growth. Stock-building by firms trimmed 0.2 percentage points from GDP growth and construction activity cut 0.4 points.
On the currency markets, the euro fell as low as $1.4570 - its weakest since mid-February - as the dollar index climbed to its highest this year. - (Reuters/ Financial Times service)
