Germany: Economy rebounds at record pace in Q3
A second reading revealed that the economy expanded 8.5% quarter-on-quarter on a seasonally-adjusted basis in Q3 (previously reported: +8.2% qoq s.a.), swinging from the record 9.8% contraction recorded in the second quarter. The third quarter’s result marked the strongest expansion on record and was driven by an improvement in both domestic and foreign demand. However, the upturn was flattered by a supportive base effect, and the economy was still down 3.9% year-on-year (Q2: -11.3% yoy).
On the domestic front, household consumption surged 10.8% in Q3 quarter-on-quarter, swinging from Q2’s 11.1% contraction, as the reopening of the economy unleashed pent-up spending. However, government spending grew at a more moderate pace in Q3 compared to the prior quarter, increasing 0.8% (Q2: +2.2% qoq s.a.). Fixed investment, meanwhile, was up 3.6% in the third quarter (Q2: -6.6% qoq s.a.), although data showed a mixed run as investment spending in construction dropped for the second quarter in a row.
On the external front, the easing of lockdown measures elsewhere boosted the sector. Exports of goods and services skyrocketed 18.1% over the prior quarter (Q2: -20.5% qoq s.a.). Moreover, imports further highlighted strengthening domestic demand as they jumped 9.1% quarter-on-quarter (Q2: -15.9% qoq s.a.).
Looking ahead, activity is forecast to recover robustly next year as the reopening of economies buttresses domestic and foreign demand. Moreover, accommodative fiscal and monetary policies should provide further support. That said, the reading will be flattered by a supportive base effect and risks remain tilted to the downside due to lingering uncertainty over the evolution of the pandemic—although an effective vaccine could usher in a quicker return to normalcy—and Brexit.
Carsten Brzeski, global head of macro research at ING, added:
“Recent news that there are three different potential vaccines as well as some support from the next US administration for transatlantic trade are actually good reasons for optimism. However, for the time being, the old saying that things will first get worse before they get better doesn’t only apply to the current state of the German national soccer team but also to the entire economy.”