Germany: Economic growth remains resilient in the final stretch of 2017
On 23 February, Destatis released a detailed breakdown of economic growth in the final quarter of 2017, confirming the preliminary reading of 0.6% quarter-on-quarter. The result was a notch below the 0.7% quarter-on-quarter rate in the prior quarter. Strong foreign demand for German goods and services helped sustain the robust economic momentum seen throughout the year, while domestic demand painted a somewhat mixed picture. On a year-on-year basis, the economy grew 2.3%, supported by domestic and foreign demand; the rate was broadly unchanged from the 2.2% expansion seen in the previous quarter. On a calendar-adjusted basis, the economy grew 2.9% in the fourth quarter (Q3: +2.7% year-on-year).
The quarter-on-quarter result showed a mixed domestic picture. Private consumption and fixed investment growth recorded zero percent growth in Q4 from the previous quarter (Q3: -0.2% quarter-on-quarter and +0.4% qoq, respectively). Household expenditure was also flat from the prior quarter, despite declining unemployment; average unemployment reached its lowest level since post-reunification in November and December. As a result, wage growth and disposable incomes continued to rise robustly. Fixed investment growth was flat due to a moderation in investment growth in machinery and equipment, while investment in the construction sector contracted for the second consecutive quarter. Record-high levels of business confidence did not translate into a pick-up in the pace of fixed investment growth.
The pace of expansion of both exports and imports picked up, but the external sector’s contribution to GDP was nonetheless positive as export growth comfortably outpaced import growth. Exports grew a strong 2.7% in the final quarter from the previous quarter, marking the best result since the second quarter of 2010. The pace of growth of imports nearly doubled from 1.1% qoq to 2.0% qoq in the fourth quarter.
With the release of the fourth-quarter result, figures for full-year growth showed that the German economy picked up pace from 2016. The economy grew 2.2% in 2017 (2016: 1.9%) on the back of a solid across-the-board performance. Private and government consumption, fixed investment and net exports all turned in positive results for the year, and the fundamentals that supported growth in 2016 and 2017 are expected to remain in place in 2018.