Germany: Economic growth softens more than previously estimated in Q3
The Germany economy expanded 1.7% on a seasonally-adjusted quarter-on-quarter basis in the third quarter. This was down from both the previously estimated 1.8% expansion and the second quarter’s 2.0% increase. On an annual basis, the economy expanded 2.5% in the third quarter, down from the second quarter’s 10.4% increase.
The quarterly expansion came solely on the back of household consumption, which grew 6.2% over the prior period (Q2: +3.8% qoq). This came despite soaring inflation, with the easing of restrictions and a tight labor market supporting spending. However, domestic demand was held back by contracting public and capital consumption. Government expenditure dropped 2.2% over the previous quarter, swinging from the second quarter’s 4.6% increase. Fixed investment, meanwhile, also dropped 2.2% over the prior period, which came after the 1.2% increase logged in the second quarter. This was driven by falls in capital expenditure on both the construction sector and on machinery and equipment.
Turning to the external sector, exports of goods and services fell 1.0% quarter-on-quarter in Q3, swinging from the 0.6% expansion recorded in Q2. Exports were likely held back by supply bottlenecks weighing on the industrial sector. Supply-side constraints likely also hindered imports of goods and services, which contracted 0.6% quarter-on-quarter in Q3, after expanding 2.2% in Q2.
Turning to the fourth quarter, continued supply bottlenecks and tighter Covid-19 restrictions will likely end 2021 on a sour note. Higher energy prices fueling inflation could further dent household spending. Looking ahead, the German economy should perform better next year amid the delayed-onset recovery as supply bottlenecks ease in H2, boosting the industrial sector and goods exports. Moreover, a tight labor market will continue to support wage growth and consumer spending. Furthermore, the new government’s coalition deal should see greater public investment in infrastructure, housing and industrial modernization. This, coupled with the proposed increase to the minimum wage and spending on digital infrastructure, should further propel the economy.