German Economy Lags as Euro Area Grows and Inflation Picks Back Up

Germany, the euro area's largest economy, managed only marginal growth of around 0.1% in the second quarter, lagging a bloc that surprised to the upside. Eurostat's preliminary estimate showed euro area GDP expanding 0.4% from the previous quarter, up from flat growth earlier in the year and ahead of forecasts, with the strongest performances coming from smaller economies while Germany, France and Italy trailed. The subdued German reading underscores the structural challenges facing its manufacturing-heavy economy, from weak external demand to competitive pressure in key export markets. Adding to the complexity, early inflation data suggested price pressures are re-emerging: economists estimated that German headline inflation rebounded to roughly 2.7% to 2.8% in July, up from June, after regional readings showed firmer price growth across several states. The pickup echoes a broader trend, with euro area inflation edging up to 2.9% on higher energy costs. For policymakers, the mix of tepid German growth and firmer inflation is awkward, limiting room for support even as the economy struggles to gain momentum, though officials expect fiscal stimulus to help later in the year.