FRANKFURT: The German economy probably stagnated in the second quarter as industry shifted down a gear in the face of geopolitical concerns, the Bundesbank said in its monthly report on Monday.
The loss of momentum in Germany, Europe's biggest economy, will concern policymakers who are watching for any impact on the bloc from the Ukraine crisis and Israel's ground offensive in Gaza.
German construction activity in April and May was below that seen in the mild winter months, the Bundesbank said.
"Industry shifted down a gear," the German central bank added in its July monthly report. "As well as calendar effects, increased geopolitical tensions likely played a role in this."
"Considering that the services sector probably expanded further, seasonally and calendar-adjusted real gross domestic product could have kept the same level in the second quarter as the first quarter," it said.
Historically, domestic demand has not been Germany's principal economic engine but German consumers have propped up the economy recently as its traditional backbone, exports, have struggled.
Economists polled by Reuters earlier this month expected second-quarter growth of 0.2 percent in Germany, followed by 0.5 percent in each of the following five quarters.
But the Mannheim-based think tank ZEW's monthly survey showed last week that German analyst and investor morale dropped in July to its lowest level since December 2012, suggesting the third quarter got off to a shaky start for Germany.
Other recent data from Germany has also been subdued, with exports, imports, industrial orders, output and retail sales all falling in May compared with a month earlier. Business sentiment has also taken a turn for the worse.
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