Brandenburg Gate in Berlin, Germany

Germany GDP Q2 2018

Germany: Economic growth edges up in the second quarter on domestic demand

A detailed breakdown of economic growth released on 24 August by Destatis confirmed the preliminary estimates that showed momentum in the German economy gained steam in the second quarter. The economy, spearheaded by domestic demand, grew 0.5% quarter-on-quarter, which is slightly above the first quarter’s 0.4% increase. On an annual basis, economic growth accelerated from 1.4% in the first quarter to 2.3% in the second quarter on a price-adjusted basis.

Domestic demand benefited from a recovery in government expenditure, which grew 0.6% quarter-on-quarter and contrasted the 0.3% contraction recorded in the previous quarter. On the other hand, household expenditure growth moderated from 0.5% in the first quarter to 0.3% in the second quarter. Private consumption eased despite the unemployment rate reaching its lowest level in the second quarter since German reunification. However, consumer confidence declined in the quarter on a deterioration in economic expectations, partially weighed down by increasing global uncertainty over trade policies. Nonetheless, private consumption has expanded in last 13 quarters. Meanwhile, growth in fixed investment more than halved in the second quarter to 0.5% from 1.4% in the first quarter. The moderation in growth came on the back of sizable decelerations in machinery and equipment, and construction investment growth.

The contribution of net exports to gross domestic product worsened from minus 0.1 percentage points in the first quarter to minus 0.4 percentage points in the second quarter. This is chiefly due to import growth significantly outpacing export growth. While exports rebounded from a 0.3% contraction in the first quarter to expand 0.7% in the second quarter, import growth was 1.7%, contrasting the previous quarter’s 0.2% contraction.

The economy should continue growing robustly over the next few quarters on the back of domestic demand. However, worker shortages, a lack of investment and infrastructure bottlenecks could limit growth potential, and a possible escalation in trade tensions between the European Union and the United States is a downside risk.

Germany GDP Forecast

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