Germany: Economic growth flatlines in Q2
A detailed breakdown of national accounts data revealed that the German economy expanded 0.1% quarter on quarter on a seasonally-adjusted basis in Q2. While this marked a slowdown from the first quarter’s 0.8% expansion, it was an improvement over the preliminary estimate of flatlining growth. On an annual rate, the economy grew 1.8% (Q1: +3.9% yoy) and returned to its pre-pandemic size.
The quarterly print was driven by firming government consumption growth (Q2: +2.3% qoq; Q1: +1.8%) and a stable household consumption expansion of 0.8% (Q1: +0.8% qoq). Private consumption defied higher inflation, an energy crisis and downbeat consumer confidence. A tightening of the labor market provided respite to spending. Meanwhile, fixed investment contracted 1.3% quarter on quarter, swinging from the prior period’s 2.1% expansion. This was chiefly driven by fall in capital outlays in the construction sector.
The external sector, meanwhile, deducted from the headline reading for the fifth consecutive quarter and marked the strongest contraction in the series amid a deteriorating international backdrop. Exports of goods and services expanded 0.3% quarter on quarter in Q2, swinging from the 0.7% contraction recorded in the first quarter. Growth in imports of goods and services rose to 1.6% in the second quarter, from 0.4% in the first. All in all, the external sector deducted 0.6 percentage points from the headline reading (Q1: -0.5 percentage points).
While the receding impact of the pandemic could bring some relief to the economy in the third quarter, the war in Ukraine, elevated inflation, protracted supply chain issues, and downbeat consumer and business confidence cloud the outlook. Furthermore, the government’s fiscal relief plan for energy prices expires in August, meaning further increases in pricing pressures are expected in the fourth quarter and beyond.