Germany’s economy will recover from a bout of winter weakness but fall well short of the dynamic growth rates of previous years as eurozone recession and global slowdown stunt exports and investment.

What hue of government will result from September elections is injecting uncertainty

There are homegrown problems too. What hue of government will result from September elections is injecting uncertainty, and foreign investors cite worries about over-regulation and Germany’s future energy mix after Chancellor Angela Merkel turned her back on nuclear power.

Europe’s paymaster was long resilient to the euro debt crisis but contracted at the end of last year and only eked out meagre growth in the first quarter.

The Bundesbank said last week that a solid second quarter recovery was in prospect. Construction is expected to bounce back after a harsh winter and private consumption will grow thanks to low unemployment, inflation-busting wage increases and low interest rates.

But even the government forecasts just 0.5 per cent growth in 2013 and economists doubt German companies will start investing heavily in the short term.

“Nobody expects strong growth for this year now especially as the first quarter was so sobering,” said Christoph Schmidt, head of the German Council of Economic Experts, advisors to the government known as the ‘wise men’.

The economy grew just 0.1 per cent in the first quarter after shrinking 0.7 per cent in the last three months of 2012.

“Trade will not contribute much, it could even drag on growth, so that leaves domestic demand,” Schmidt said. “Private consumption is relatively stable but investments are restrained and the key question will be when and how much they pick up.”

Economy Minister Philipp Roesler gave an upbeat spin, telling Reuters “the positive development of the economy will continue and investment would revive”.

And after the Munich-based Ifo think tank’s business climate index climbed on Friday, it said growth should jump in the second quarter thanks in part to a major construction rebound.

But that will be an ephemeral effect. Germany’s DIHK Chambers of Commerce cut its growth forecast for this year to 0.3 per cent from 0.7, citing concerns that exports will pick up less strongly than expected.

Uncertainty kills investment plans and a survey compiled by the ‘wise men’ shows it is still significantly higher than in the 20 years leading up to the financial and debt crises.

Capital investment is also dependent on world markets since so much of German industry is geared towards exports.

Lanxess, the world’s largest synthetic rubber maker, has reined in its investment budget for 2013 due to weak European car tyre markets. “Without its exports, the German economy is like a sports car without sixth gear,” said Carsten Brzeski, economist at ING.

Demand for German goods in fast-growing emerging markets such as China has compensated somewhat for Europe, mired in a debt crisis for more than three years. But a global slowdown and a weak Japanese yen have dimmed even that beacon of hope.

Exports to countries outside the EU dropped 0.2 per cent on the year in the first quarter. Sales to the euro zone fell 3.9 per cent on the year. Japanese exports, meanwhile, have risen strongly since a new government there demanded expansionary money printing.

“The yen has depreciated by 24 per cent since September and in same period there was no change in the euro, so that is a huge advantage, and Japan and Germany are very strong in similar sectors,” said Christian Schulz, an economist at Berenberg Bank.

Kai Carstensen, a senior Ifo economist, expects investment to pick up slightly in the second quarter given the resolution of the Cyprus bank crisis and the appointment of a government in Italy.

But investment would only rise sharply when firms felt more confident, said government advisor Schmidt, and this would only come with a comprehensive solution to the euro crisis.

The lack of a government roadmap to deal with rising energy prices following Merkel’s decision to switch to green energy from nuclear is also weighing on investment.

US companies polled by the American Chambers of Commerce in Germany have warned that rising energy prices were making them cautious about investing. They also criticised bureaucracy and over-regulation, with 85 per cent saying Germany needed to reform to keep up with its global competition.