Investment and consumer spending weighed on Germany’s economy in the second quarter — dashing hopes that the country can finally leave behind years of stagnation.

The 0.1% contraction in gross domestic product included a 2.2 per cent plunge in capital investment and a 0.2 per cent drop in private consumption, the country’s statistics office said Tuesday. Government expenditure, meanwhile, was up 1 per cent.

While Europe’s biggest economy started the year on a solid footing, it’s struggled to maintain that momentum. Recent indicators have signaled a souring mood among companies, especially in the crucial manufacturing sector.

An expectations index by the Ifo institute slipped for a third month in August, with president Clemens Fuest warning that Germany is “falling into crisis.” Business surveys by S&P Global last week signaled a steeper contraction amid falling factory output.

The industrial sector has been suffering from subdued foreign demand, high borrowing costs and increased political uncertainty. An expected consumer recovery on the back of strong wage increases has also failed to materialize so far.

The Bundesbank still sees expansion in the third quarter as rising incomes eventually translate into stronger spending, especially on services. In manufacturing, the situation is expected to remain difficult — pointing to only meager overall growth this year. - Bloomberg