08:05 AM EDT, 08/27/2024 (MT Newswires) -- Tuesday's second estimate of German gross domestic product (GDP) growth in Q2 confirms that the economy fell back into contraction, shrinking by 0.1% quarter-on-quarter, from 0.2% q/q growth in q/q, noted ING.

On the year, GDP growth was up by 0.3%.

While private consumption dropped by 0.2% q/q and investments plunged by more than 2% q/q, government consumption rose by 1% q/q. Net exports were also a drag on growth. In fact, the Q2 performance of the German economy looks like a reversal of Q1 performance.

The German economy had started the year with some optimism, wrote the bank in a note. Q1 GDP growth was a positive surprise and confidence indicators improved, giving rise to hopes that the pessimism of the last few years was behind us and that discussions about whether or not Germany was the "sick man of Europe" could be put to one side.

The truth, however, is that GDP growth in Q1 was driven by the mild winter weather and a downward revision of Q4 GDP, stated ING. As a consequence, it wasn't what the bank would call a sustainable and healthy growth story.

With disappointing Q2 growth and almost all confidence sentiment indicators pointing south, the German economy is currently back where it was a year ago: stuck in stagnation as the growth laggard of the entire eurozone, pointed out ING.

Still, the bank isn't ready, yet, to give up on at least some optimism for the second half of the year. The highest increase in real wages in more than a decade could still open German consumers' wallets and there only needs to be a small improvement in industrial orders to bring the long overdue turning of the inventory cycle.

Admittedly, hopes of a consumer-driven recovery in the second half of the year got another hit Tuesday with consumer confidence dropping, added ING.

The fact of the matter is that the German economy is currently learning the hard way what it means to be in the middle of cyclical headwinds and structural changes. It is stuck in stagnation, according to the bank.