By Nina Adam 
 

FRANKFURT--Germany's economic growth accelerated in the second quarter, but economists said global trade tensions and a spiraling currency crisis in Turkey are clouding the outlook for businesses.

Gross domestic product grew at a quarterly rate of 0.5%, or 1.8% in annualized terms, the Federal Statistical Office said Tuesday. It also raised its first-quarter growth estimate to an annualized 1.5% from 1.2% growth reported in May.

As a consequence, Germany's economy outpaced the eurozone in the three months through June--that is if the European Union's statistics agency later Tuesday confirms its preliminary estimate of 1.4% growth in annualized terms. But it lags U.S. growth of 4.1%.

The statistics body said "positive impulses" came from domestic demand, as spending by German households and the government picked up from the first quarter.

Private consumption is expected to remain solid in the coming months, backed by a buoyant labor market and rising wages but capped by rising inflation, which partly erodes the positive effects of pay gains.

Investments in plants and machinery picked up too, albeit only slightly, the German statistics body said, while net exports acted as a drag on second-quarter growth.

But trade tensions stoked by the U.S.-- especially a souring in relations between the US and China-- have already began to undermine German business sentiment and companies' appetite for bigger projects.

And while forecasters have turned more bullish on the U.S. economy largely thanks to sweeping tax cuts by the Trump administration, they have grown nervous about the outlook for the eurozone.

Illustrating the concerns, Germany's economy has lost momentum since late 2017, and recent economic data signal that it won't accelerate further in the near term.

The country's manufacturing orders--an indicator of future production--dropped 4.0% in June compared with May led by a 5.9% drop in demand from outside the eurozone.

The VDMA industry group warned Monday that companies are feeling the pinch from Turkey's currency crisis, with the lira down more than 70% compared with the euro since the start of 2018. German plant and machinery exports to Turkey fell 4.7% in January through May compared with the same period in 2017, according to the VDMA, which expects the negative trend to continue.

Although Turkey is not among Germany's largest trading partners, a fully fledged crisis could still hurt business confidence and bank lending in the eurozone, economists said.

Write to Nina Adam at nina.adam@wsj.com

(END) Dow Jones Newswires

August 14, 2018 02:56 ET (06:56 GMT)

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