German economic growth in the second quarter may have outpaced the first-quarter rate of 0.4 per cent, the Bundesbank said today, but the government warned that weak domestic spending made the recovery fragile.
Growth is being driven by strong exports, while domestic industry orders stagnated in May and the construction sector developed "unfavourably" in the spring months, the central bank said in its July monthly report.
"Gross domestic product -- adjusted for seasonal, calendar and price effects - is likely to have continued to grow significantly in the second quarter," the Bundesbank said.
German Junior Finance Minister Mr Volker Halsch
"There is much to suggest that the growth rate was even a bit higher than in the first three months."
The finance ministry warned in a separate monthly report today that the recovery would only become self-sustaining when domestic consumption and consumer spending pick up.
"The recovery remains fragile," Junior Finance Minister Mr Volker Halsch wrote in a foreword to the July report, adding that the upturn would need to become broadly based for Germany's fiscal position to improve. Germany is set to breach EU budget deficit rules this year for the third year running.
The ZEW investor expectations index, due to be released tomorrow, is expected to underline doubts about the quality of the recovery, with analysts polled by Reuters predicting a fall to 47.00 in July from 47.4 in June.
However, the head of the panel of independent economic advisors to the government, also known as the "five wise men", today raised the panel's growth forecast to 1.8 per cent in 2004 from 1.5-1.7 per cent and said exports will jump almost 10 per cent.