Germany GDP


Germany: Economic growth slows in the third quarter but recovery remains on track

November 23, 2010

The economy slowed in the third quarter, after having registered the fastest growth rate observed in two decades in the second quarter. Gross domestic product (GDP) grew a seasonal and calendar adjusted 0.7% in the third quarter, which was well below the revised 2.3% expansion observed in the second quarter (previously reported: +2.2% quarter-on-quarter). The reading was in line with market expectations and represented the sixth consecutive quarter of growth after a series of four quarters of contracting activity. On an annual basis, the economy grew 3.9% the third quarter (Q2: +4.3% year-on-year). The slowdown over the April-June quarter mainly reflected less dynamic developments in the domestic sector, with domestic demand slowing from a 1.9% expansion in the second quarter to a 0.4% increase in the third. In particular, private consumption added 0.4% in the third quarter (Q2: +0.6% qoq) and gross fixed investment decelerated from a 5.6% expansion in the second quarter to increase only 1.3%. Government consumption was the only factor to increase, expanding 1.1% in the third quarter following a contraction of the same magnitude observed in the second quarter. Meanwhile, the external sector deteriorated compared with the previous quarter, as a result of a softening in both export and import growth. Exports of goods and services grew at the slowest pace so far this year, increasing 2.3% in the third quarter, well below the 7.9% expansion registered in the previous quarter. Simultaneously, imports registered a notable deceleration in the third quarter, adding 1.9% (Q2: +7.8% qoq). As a result, the net contribution from the external sector to overall economic growth fell from 0.5 percentage points in the second quarter to 0.3 percentage points in the third. At the sector level, the third quarter deceleration was broad based, reflecting slower growths in all three main sectors of the economy. Agriculture grew 0.1% over the previous quarter (Q2: +0.8% qoq), while the industrial sector expanded 0.3% over the same period (Q2: +4.8% qoq). Services grew only 0.8% in the third quarter, well below the 1.1% increase observed in the second quarter. In its October bulletin, the Bundesbank painted a positive picture of the economy, but urged the government not to make any concessions on the planned fiscal consolidation. The Bank sees the government bringing the fiscal deficit in line with the European Union's limit of 3.0% of the GDP by 2011. Monetary authorities also stated that the economy will expand 3.0% this year, up from its previous 1.9% estimate. Meanwhile, in its recent annual report the German Council of Economic Experts (Sachverst

Author:, Senior Economist

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