Germany: GDP growth levels off in the second quarter
August 25, 2017
The German economy continued to perform strongly in Q2, as confirmed by detailed data published by Destatis on 25 August. GDP grew 0.6% quarter-on-quarter, down from a revised 0.7% increase in Q1 (previously reported: +0.6% quarter-on-quarter). The result was in line with both the flash estimate and market expectations. The acceleration was driven by strong domestic demand growth, while net exports dragged on this quarter’s outturn. On an annual basis, GDP expanded 0.8% in Q2, down from Q1’s 3.2%. However, this difference is mainly due to the fact that the second quarter had three fewer working days than the same quarter last year, because Easter was late this year. On a working-day adjusted basis, Q2 GDP grew 2.1% annually.
Both private and government consumption growth accelerated strongly in Q2, reaching 0.8% qoq and 0.6% qoq, respectively, up from 0.4% qoq and 0.2% qoq in Q1. Household consumption has continued to benefit from the exceptionally strong labor market, which has boosted wages and delivered high consumer confidence. Fixed investment, however, slowed substantially, but continued to grow firmly nevertheless. The slowdown was caused by a lull in the construction sector, which had been undergoing an expansion over the past couple of years following years of underinvestment. Businesses remain very optimistic, as highlighted by record-high confidence.
The external sector’s net contribution to overall growth fell back into negative territory, subtracting 0.3 percentage points from GDP growth in Q2, which contrasted the contribution of 0.6 percentage points seen in Q1. The deterioration came on the back of a slowdown in export growth, which fell from 1.6% in Q1 to 0.7% in Q2. Import growth, on the other hand, accelerated, rising to 1.7% from 0.4% in Q1.
Despite the marginal slowdown this quarter, the overall strength of the German economy remains intact. The outlook is bright, with all components pulling in the same direction. Rising wages, a tight labor market and strong consumer confidence will continue to fuel healthy household consumption growth. The upswing in economic activity sweeping across Europe should continue supporting export growth despite the downturn in Q2. The federal elections due to take place at the end of September present very little risk of any major disruption, given the dominance in the polls of Angela Merkel’s CDU.
Author: Christopher Mc Innes, Economist