German Economy Grows By 0.4% In Second Quarter

Europe's largest economy grew by 0.4% in the second quarter, a rate that was better than expected but down on the previous quarter's 0.7%.

Economists had forecast growth of just 0.2% for the second quarter but the actual figures surpassed this, due to strong exports and domestic demand.

The federal statistics office Destatis said that exports rose compared to the first three months of the year, with cars, chemicals and machine tools selling especially well overseas.

They added that "private consumption spending and state consumption spending also bolstered growth".

The strong private consumption spending was attributed to rising incomes.

One of the main reasons given for the increase in federal spending was the arrival of 1.1 million asylum seekers in Germany last year.

German economists lifted their predictions for the coming year, many expecting growth of between 1.8 and 1.9% over that period - up from previous estimates of around 1.5%.

Construction was a weak spot, however, as bad weather affected building during the second quarter.

The Bundesbank, Germany's central bank, and the country's government have forecast 1.7% growth for the year.

But there are still fears that issues beyond the Germans' control could dent the optimism.

Economies around the world are slowing -particularly the previously booming Chinese economy - and this could affect foreign demand for German products.

There is also uncertainty surrounding Britain's exit from the European Union, which some economists think could take 0.4% off German growth by the end of the year.

ING Diba bank's Carsten Brzeski said the current recovery "is clearly running on its very last leg", as he pointed to weak investments, the shock of the Brexit vote, and fears of a global economic slowdown.

KfW bank economist Joerg Zeuner said Germany would eventually be hurt by Britain's vote to leave the EU.

"The decision to leave the EU will hit the British economy, and the slowdown will spread to Germany through muted exports.

"The UK is an important market, especially for German car makers, but also for our chemical and pharmaceutical industries."

But others, such as Commerzbank's Joerg Kraemer, said the "declining demand" from China and "strong domestic consumption" were more important factors than Brexit.

"These opposing influences should continue to largely balance each other out," he said