Germany: Economy contracts in Q2 as external sector falters
A detailed breakdown of national accounts data saw no revisions to preliminary growth figures. As such, the economy contracted 0.1% on a seasonally- and calendar-adjusted quarter-on-quarter basis in Q2, contrasting the 0.4% expansion logged in the first quarter. Meanwhile, on an annual basis, the economy flatlined in Q2 (Q1: +0.8% year-on-year)—marking the first time output has not grown since Q1 2013.
A downturn on the external front drove the overall contraction, as the drop in exports outweighed that of imports in the second quarter. In quarter-on-quarter terms, exports of goods and services shrank 1.3% in Q2, contrasting a strong 1.8% increase in Q1. Imports of goods and services, meanwhile, fell a relatively modest 0.3% on a quarterly basis in Q2 (Q1: +0.9% quarter-on-quarter). As a result, trade subtracted 0.5 percentage points from economic growth in the second quarter, swinging from a 0.5 percentage point contribution in the prior period.
Domestically, dynamics were more upbeat but remained lackluster nonetheless. Private consumption growth stumbled forwards (Q2: +0.1% qoq; Q1: +0.8 qoq), amid deteriorating consumer sentiment and an uptick in the unemployment rate. Furthermore, fixed investment contracted 0.1% quarter-on-quarter in Q2 following the robust 1.6% quarter-on-quarter expansion in Q1, due to a considerable downturn in investment activity in the construction sector. That said, government consumption rose 0.5% qoq in Q2 (Q1: +0.8% qoq), which, coupled with a positive contribution from inventories, supported overall domestic demand growth in the second quarter.
Looking ahead, most eyes are on the international scene: Ongoing trade conflicts, a disorderly Brexit and an economic slowdown in the Eurozone all threaten to derail the German economic engine further. On top of that, while the second-quarter result suggests that domestic economy continued to perform relatively well, the headwinds at home. As summarized by Carsten Brzeski, chief economist at ING Germany:
“On the back of weak confidence indicators, the risk of another contraction of the economy in the third quarter and hence a technical recession has recently increased, not decreased. The resilience of the domestic economy against the industrial slowdown and external woes has only started to weaken since the summer. […] a further escalation of the trade conflict and global uncertainty combined with no fiscal stimulus at all, is currently probably the worst of all nightmares for the German economy.”