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updated: 9/1/2011 6:10 AM

Timid consumers, nuke shutdown hurt German growth

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Associated Press

FRANKFURT, Germany -- Weaker spending by consumers worried about Europe's debt crisis and the shutdown of eight nuclear plants were key factors behind Germany's poor growth performance in the second quarter, the state statistics agency said Thursday.

Consumers spent 0.7 percent less, the first time the figure dropped since the crisis year 2009. The agency said that was due to fears over the continent's debt crisis as well as higher energy prices.

European Union leaders are struggling to contain market turmoil fed by fear that some countries that use the euro currency have borrowed more money than they can pay back. The EU is now saying that ups and downs on stock and bond markets are starting to weigh on economic trends outside the financial markets, like consumption and production.

The statistics agency statement fills in the background behind the country's disappointing quarterly growth of 0.1 percent announced Aug. 16. The figure was short of the 0.5 percent economists had expected.

"The key negative surprise was an unexpectedly large decline in private consumption," said economist Timo Klein at IHF Global Insight.

Klein said unwillingness to spend was surprising because unemployment remains low and consumer confidence surveys are down only slightly, while wages are growing. "It appears that the negative impact of rising inflation on consumer purchasing power and the escalating eurozone debt crisis led to a sudden buyers' strike during the second quarter," he wrote in a research note.

Additionally, exports of electricity almost vanished after the shutdown of eight older nuclear plants due to safety fears after the Fukushima disaster in Japan.

Economist Andreas Rees at UniCredit said the nuclear shutdown nicked a quarter-percentage point from GDP by cutting production of energy by 8.8 percent. Chancellor Angela Merkel accelerated a planned exit from nuclear power after the tsunami and reactor disaster in Japan caused new fears about the safety of the industry.

Rees foresees a return to stronger growth of 0.5 percent quarter-on-quarter in the third quarter.

Other factors affecting Germany's weak growth in the April-June period included a drop in construction spending that was in part due to work being moved up to the first quarter due to good weather.