Germany: Economy returns to growth in Q1, but storm clouds have gathered on the horizon
April 29, 2022
The economy rebounded in the opening quarter of the year, with GDP increasing 0.2% quarter on quarter on a seasonally- and calendar-adjusted basis. This contrasted the fourth quarter’s 0.3% sequential tumble. Compared to the same period a year prior, the German economy expanded 3.7% in the first quarter (Q4: +1.8% yoy), due partially to a favorable base effect as the economy was still hit by the pandemic in the same period a year prior. That said, the economy remained 0.9% below its pre-pandemic level in Q1.
A detailed breakdown has yet to be released, but data suggests that the quarterly improvement was due to greater fixed investment, while the external sector likely weighed on the overall reading. A more comprehensive reading of national accounts data for the first quarter is scheduled to be released on 25 May.
Looking ahead, the war in Ukraine will deal a notable blow to the export-oriented German economy. The conflict, plus lockdowns in China, have aggravated supply chain disruptions, which will dent industrial productive capacity. The hostilities also weigh on foreign demand, thus affecting exports of goods. In addition, the conflict has sent energy and agricultural commodity prices skyrocketing, which has already began to feed into stronger inflation and eat into consumers’ pockets. This, coupled with pessimistic sentiment, will limit household spending despite the fading impact of the pandemic and the removal of Covid-19 restrictions.
Author: Jan Lammersen, Economist