A decline in construction investment has slowed Germany's rate of economic growth by more than expected in the second quarter, offsetting brisk foreign trade and equipment spending.
Gross domestic product (GDP) expanded 0.3 per cent in the April-June period - adjusted for seasonal variations the weakest quarterly rate since the final three months of 2005, the Federal Statistics Office said in a preliminary estimate.
The disappointing figures for Europe's biggest economy came just ahead of data from Paris that showed French GDP growth also slowed more than expected in the second quarter.
Germany and France together account for around half of the combined economy of the 13-nation single currency region. Analysts said the weakness in the German building sector was a typical correction after a vibrant first quarter and predicted the economy would pick up again in the second half.
Germany's expansion, which has lasted for 11 consecutive quarters to June, has been driven by strong demand for the country's exports of machinery, cars and chemicals, as well as rising domestic investment in equipment. Household demand has yet to take off in any meaningful way, although economists are hopeful that falling unemployment will help spur consumer spending in coming months.
German companies have been reporting rising earnings and business confidence remains near record levels, according to the economic research body the Ifo Institute.
The Statistics Office said the small quarterly gain in GDP over the spring period was underpinned by "very dynamic" foreign trade and there was some support from domestic demand, although to a lesser extent than in the first quarter.
Germany's largest builder, Hochtief, said today that it had suffered losses in its home market in the first half but said it nonetheless expected sales, new orders and its order backlog overall to rise this year compared to 2006.
GDP rose by 2.5 per cent year-on-year in the second quarter, slowing from the 3.3 per cent rate at the start of the year, and below forecasts for a 2.7 per cent expansion.