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A breakdown of the data showed that exports rose 8.2% from the first quarter, however this record growth may be hard to maintain when so reliant on exports as slowdowns in China and US economies are likely to weigh on demand for foreign products.

Growth should remain strong in the second half of 2010 but we are unlikely to see a similar pace as dark clouds gather on the horizon. Also worthy of note was the weaker than expected domestic demand release, indicating that Germany cannot rely on its own people to continue to buy its products as they continue to be uber-conservative and save greater portions of their income. While private consumption in the second quarter reported its first gain since Q2 2009, we believe that domestic demand still remains tepid and needs to be boosted over the medium-term. As such Germany leaves itself vulnerable to global fluctuations rather than having solid domestic demand which can help the economy weather volatile periods in the global economy.

Still, the central bank last week raised its growth forecast for Germany this year from 1.9% to 3% calling growth in the second quarter “extraordinarily dynamic”. Bundesbank President Weber also added that “an upward revision of the forecast of 2011 is not excluded”.

On balance Germany’s second quarter growth is very impressive and should propel EMU figures for the period higher and we expect Germany to continue to grow throughout the rest of the year, albeit at a slower pace. Our concerns are based on possible double-dip scenarios in the US and further slowing in Chinese growth which could seriously affect German exports, and growth. Other concerns for German growth come closer to home; the EMU, Germany’s biggest trade partner, has many countries who are slashing budgets to tackle deficits and are likely to trim their demand for German produced goods which is likely to affect German growth in H2 2010.

Written by Jonathan Granby, DailyFX Research Team

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