Exports G&S in Germany

Germany - Exports Goods and Services

Economy contracts in Q2 as external sector falters

A detailed breakdown of national accounts data saw no revisions to preliminary growth figures. As such, the economy contracted 0.1% on a seasonally- and calendar-adjusted quarter-on-quarter basis in Q2, contrasting the 0.4% expansion logged in the first quarter. Meanwhile, on an annual basis, the economy flatlined in Q2 (Q1: +0.8% year-on-year)—marking the first time output has not grown since Q1 2013.

A downturn on the external front drove the overall contraction, as the drop in exports outweighed that of imports in the second quarter. In quarter-on-quarter terms, exports of goods and services shrank 1.3% in Q2, contrasting a strong 1.8% increase in Q1. Imports of goods and services, meanwhile, fell a relatively modest 0.3% on a quarterly basis in Q2 (Q1: +0.9% quarter-on-quarter). As a result, trade subtracted 0.5 percentage points from economic growth in the second quarter, swinging from a 0.5 percentage point contribution in the prior period.

Domestically, dynamics were more upbeat but remained lackluster nonetheless. Private consumption growth stumbled forwards (Q2: +0.1% qoq; Q1: +0.8 qoq), amid deteriorating consumer sentiment and an uptick in the unemployment rate. Furthermore, fixed investment contracted 0.1% quarter-on-quarter in Q2 following the robust 1.6% quarter-on-quarter expansion in Q1, due to a considerable downturn in investment activity in the construction sector. That said, government consumption rose 0.5% qoq in Q2 (Q1: +0.8% qoq), which, coupled with a positive contribution from inventories, supported overall domestic demand growth in the second quarter.

Looking ahead, most eyes are on the international scene: Ongoing trade conflicts, a disorderly Brexit and an economic slowdown in the Eurozone all threaten to derail the German economic engine further. On top of that, while the second-quarter result suggests that domestic economy continued to perform relatively well, the headwinds at home. As summarized by Carsten Brzeski, chief economist at ING Germany:

“On the back of weak confidence indicators, the risk of another contraction of the economy in the third quarter and hence a technical recession has recently increased, not decreased. The resilience of the domestic economy against the industrial slowdown and external woes has only started to weaken since the summer. […] a further escalation of the trade conflict and global uncertainty combined with no fiscal stimulus at all, is currently probably the worst of all nightmares for the German economy.”

FocusEconomics Consensus Forecast panelists see the economy expanding 0.7% in 2019, which is unchanged from last month’s forecast. For 2020, the panel forecasts GDP growth of 1.1%.