Germany: GDP tumbles at slightly quicker rate than previously estimated in Q1
The economy contracted at a slightly steeper pace than previously estimated in the first quarter, with GDP falling 1.8% quarter-on-quarter (previously reported: -1.7% qoq). The print contrasted the 0.5% expansion logged in the prior quarter and came on the back of the lingering impact of restrictive measures. In annual terms, the economy shrank 3.4% (previously reported: -3.3% yoy), down from the fourth quarter’s 2.3% drop.
Looking at the domestic economy, Q1’s deterioration in quarterly terms was chiefly driven by a contraction in household spending. Private consumption dived 5.4% over the prior quarter (Q4: -2.3% qoq), weighed down by tighter restrictions in place since the middle of December, while the end of the temporary VAT reduction on 1 January likely hurt spending as well. Public consumption growth, however, accelerated to 0.2% in the first quarter from 0.1% in the fourth quarter. Meanwhile, fixed investment growth slowed to 0.3% in Q1 from 2.5% in Q4. This was mainly due to contracting investment in machinery and equipment, while construction investment expanded at a softer rate.
The external sector, meanwhile, subtracted 0.6 percentage points from the overall GDP reading. Growth in exports of goods and services slowed from 4.4% quarter-on-quarter in Q4 to 1.8% in Q1, while growth in imports of goods and services accelerated to 3.8% from 3.3% in the prior quarter.
Going forward, activity is expected to bounce back from the second quarter as the economy reopens, with the gradual easing of restrictive measures lifting domestic and foreign demand. However, downside risks remain amid lingering uncertainty over the virus and supply-side disruptions such as semiconductor shortages. That said, supply-side issues should merely delay the rebound in the industrial sector.
Carsten Brzeski, global head of macro at ING, added:
“Today’s disappointing GDP reading was actually already old news at the moment of its publication. The German economy will now rebound quickly and should, in our view, reach its pre-crisis level before the end of this year.”