Wednesday, May 12, 2010

It’s a recovery, not a stagnation.

According to the first estimate by the German agency for statistics, the recovery continued in the Q1 2010. The German economy grew by 0.2% QoQ. Compared with the Q1 2009, German GDP increased by 1.7%. The decomposition of the GDP numbers will only be published in two weeks but recent monthly data indicate that growth was driven by exports and investments, while private consumption remained a drag on growth. In addition, the numbers for the fourth quarter of 2009 were revised upwards. Instead of stagnating, the German economy also grew by 0.2% QoQ in Q4 2009.

The strong March figures came right in time to make an almost lost quarter look somewhat better. Looking ahead, the recent Spring revival bodes well for the second quarter. All indicators signal a strong rebound. Confidence indicators are back at their pre-crisis levels, order books are still growing, the labour market is further stabilising and parts of the government’s stimulus package are only currently finding their way into the economy.

If Sunday’s big bail-out package succeeds in calming markets and confidence, the short-term impact from the Eurozone’s fiscal crisis on the German economy should be limited and even positive. Lower bond yields and the weaker euro could benefit the German economy. However, fiscal consolidation in several Eurozone countries and ending stimulus packages should have a downward impact on growth in the second half of the year.

Today’s numbers show that the recovery is continuing, even with the harsh winter weather. Still, the numbers do not show the recovery’s true colours, neither will second quarter growth. The bumpy ride will continue and, at least in the coming months, it should be a nice ride.

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