Domestic Demand in Germany

Germany Domestic Demand | Economic News & Forecasts

Germany - Domestic Demand

Economy contracts in Q2 on drag from the external sector

Preliminary data released by Germany’s Statistical Institute showed that the economy contracted 0.1% on a seasonally- and calendar-adjusted quarter-on-quarter basis in the second quarter, contrasting the 0.4% expansion logged in the first quarter. Nevertheless, the economy still expanded 0.4% over a year ago.

The sequential data reaffirmed the ongoing dichotomy in the German economy: Despite weakening profit warnings and the first job losses, domestic demand contributed to economic growth, while external headwinds dragged on exports and thereby restrained the economy. In the domestic economy, fixed investment continued to grow despite a drag from construction investment, while both public and private consumption also expanded. Household expenditure benefited from a still-tight labor market and relatively stable inflation in the quarter, while consumer sentiment remained elevated despite edging down. This partly reflected lingering trade tensions and uncertainty surrounding Brexit, which affected the external sector and thus the overall economy. In the second quarter, exports swung from a meagre growth rate in the first quarter to a marked contraction. Meanwhile, imports fell at a softer pace in the quarter, and the external sector consequently weighed on economic growth.

Commenting on the preliminary release, Carsten Brzeski, chief economist at ING Germany, noted that the headline figure “definitely marks the end of a golden decade for the Germany economy”. Elaborating on this point, Brzeski noted: “Since 3Q 2018, the economy has been in a de facto stagnation with quarterly GDP growth at an average of zero percent. Trade conflicts, global uncertainty and the struggling automotive sector have finally brought the German economy down on its knee.” That said, he also stressed “the fact that the German economy is currently in stagnation is not the most disconcerting message after a long period of strong growth”; rather, it is “the weakening of the domestic economy that is most worrisome.”

Looking ahead, the outlook for the German economy will depend on developments in the external sector regarding trade conflicts and Brexit, as well as fiscal policy. “Some fiscal loosening looks in our view more likely than many might think”, concluded Brzeski, as economic growth is projected to moderate noticeably from last’s year pace amid softening domestic demand and a weaker contribution from trade.

FocusEconomics Consensus Forecast panelists see the economy expanding 0.9% in 2019, which is unchanged from last month’s forecast. For 2020, the panel forecasts GDP growth of 1.4%.

Germany - Domestic Demand Data

2013  2014  2015  2016  2017  
Domestic Demand (annual variation in %)0.9  1.6  1.6  3.0  2.0  

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Germany Facts

ValueChangeDate
Bond Yield-0.480.41 %Jul 31
Exchange Rate1.110.65 %Jul 31
Stock Market12,189-0.41 %Jul 31

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