Germany expected to be only major economy not to grow this year

The German economy is still failing to grow, figures showed on Friday, as the country that should be the industrial powerhouse for all of Europe struggles with high energy prices, rising borrowing costs and a lagging rebound from key trading partner China.

Economic output in Germany stagnated in the April-to-June quarter, the Federal Statistics Office said. That follows a decline of 0.1% in the first three months of the year and a drop of 0.4% in the last three months of 2022 as the energy shock from Russia's war in Ukraine echoed through Europe's largest economy.

It comes after the International Monetary Fund forecast this week that Germany would be the globe's only major economy to shrink this year, even with weak economic growth around the world amid rising interest rates and the threat of growing inflation.

In Germany, the economy has been buffeted by several challenges. Above all, its long-term dependence on Russian natural gas to fuel industry backfired when the invasion of Ukraine led to the loss of most of Moscow's supply and to higher costs for energy-intensive industries such as metals, glass, cars and fertilizer.

Higher interest rates from the European Central Bank have weighed on construction projects that depend on borrowing. Meanwhile, the rebound in China, Germany’s largest trade partner, after the end of drastic COVID-19 restrictions has been less than many had hoped for.

The second-quarter economic performance was “far from satisfactory,” said Vice Chancellor and Economy Minister Robert Habeck.

He urged action on his proposal to cap energy prices for industry with government help, which has run into scepticism in parts of the governing coalition, and more investment in future-oriented technology such as