Germany: GDP growth picks up in Q3
November 23, 2017
A detailed breakdown released by Destatis on 23 November confirmed that the German economy performed robustly in Q3. GDP grew 0.8% quarter-on-quarter, up from a 0.6% increase in Q2. The result matched the flash estimate. The acceleration was driven by strong demand from abroad, which offset a slowdown in domestic demand. Net exports drove this quarter’s result, while private consumption and government consumption remained relatively stable at the prior quarter’s levels. In year-on-year terms, GDP expanded 2.3% in Q3, up from Q2’s revised 1.0% (previously reported: +0.8% year-on-year). On a working-day adjusted basis, Q3 GDP grew 2.8% annually.
The domestic economy slowed in the third quarter. Private consumption contracted 0.1% and government expenditure came in at 0.0% qoq, down from a 0.9% qoq expansion and a 0.2% qoq expansion, respectively, in the second quarter. Household expenditure slowed despite high levels of consumer confidence throughout the quarter and tight labor market conditions, which boosted wage growth. The pace of fixed investment growth also slowed from the prior quarter (Q3: +0.4% quarter-on-quarter; Q2: +1.5% qoq); however, it still expanded on the back of solid fixed investment growth in machinery and equipment. Business confidence remained at high levels in the third quarter and picked up at the outset of the fourth quarter, boding well for fixed investment growth through year-end.
The external sector improved in the quarter, adding 0.4 percentage points to GDP growth in Q3, contrasting the prior quarter’s revised 0.4 percentage point subtraction. The improvement came on the back of an acceleration in export growth, which increased in quarter-on-quarter terms from a revised 1.0% in Q2 to 1.7% in Q3. Import growth, however, slowed from a strong, revised 2.4% qoq in Q2 to 0.9% qoq in Q3.
Economic growth in the third quarter picked up pace on a strong external sector. The outlook for the end of the year is still bright, despite the recent collapse in coalition talks that shoved Germany into political uncertainty: Early data for Q4 points towards an ongoing expansion in the German economy. Moreover, the upswing in the global economy should support the external sector going forward. However, political uncertainty could, if prolonged, drag on the economy. Analysts consider new elections the likeliest outcome; they would, however, most likely not yield significantly different results.
Germany GDP Forecast
The German economy is expected to remain fairly robust. The government expects economic activity to increase 1.7% in 2018. FocusEconomics Consensus Forecast panelists are slightly more optimistic and foresee economic activity expanding at a broadly steady pace of 2.0% in 2018, which is up 0.1 percentage points from last month’s forecast. For 2019, however, the panel expects GDP growth to moderate to 1.7%
Author: Jan Lammersen, Economist