Investment in Germany

Germany - Investment

Economy posts strong rebound in Q2

The economy rebounded in the second quarter according to a flash estimate, with GDP expanding 1.5% in quarter-on-quarter terms after tumbling 2.1% in Q1. On an annual basis, the economy grew 9.6% in April–June, contrasting the 3.4% contraction recorded in the previous three months.

While a detailed breakdown of components is yet to be released, available data suggests that the headline result was spearheaded by stronger household consumption and government expenditure. Consumers spent more time outside their homes and increased their spending amid the relaxation of restrictive measures from late May. External trade should have also benefited from healthier foreign demand amid the easing of lockdowns abroad and a pickup in international trade, according to available figures.

A detailed breakdown of national accounts data will be released on 24 August.

The economy is expected to continue growing at a healthy pace in the second half of the year. The gradual lifting of lockdown measures at home and abroad will strengthen domestic and foreign demand in turn. However, risks are skewed to the downside amid lingering uncertainty over the course of the pandemic due to the emergence of more infectious strains of the virus, while supply-side disruptions could weigh on activity in the short term.

Commenting on Q2’s release and the outlook, Carsten Brzeski, global head of macro at ING, added:

“Despite the downside risks to growth, we expect the economy to return to pre-pandemic levels before the end of the year. […] Three factors will determine the outlook for the German economy: the Delta variant, supply chain frictions and inflation. Any new restrictions on the back of the Delta variant could easily derail a further acceleration of the economy. However, with the upcoming elections, we don’t expect any significant new restrictions that could undermine domestic economic activity.”

FocusEconomics Consensus Forecast panelists see the economy expanding 3.8% in 2021, which is down 0.1 percentage points from last month’s forecast. For 2022, the panel forecasts GDP growth of 3.6%.