Golden memories. Today’s second estimate of German 3Q GDP growth confirmed an excellent growth performance. The German economy grew by 0.5% QoQ, from 0.3% QoQ in 2Q. Compared with 3Q 2010, the economy grew by 2.6%. Today’s release also presented the growth decomposition, showing that the recovery is more balance than many people think. Third quarter growth was broadly balanced. In fact, private consumption was the main growth driver with a significant rebound of 0.8% QoQ. Net exports, government expenditures and investment also contributed to growth. Only the construction sector disappointed. However, there was one warning signal: the first inventory correction for more than a year, reflecting weakening new orders.
With the latest drop in confidence indicators and fiscal problems in France and Italy, two important German trading partners, concerns about the strength of the German economy have increased. Yesterday’s disappointing bond action added to these concerns. Nevertheless, the German economy should not fall off a cliff as it did in 2008. The economic fundamentals are solid and the combination of low inventories and high backlogs should put a safety net under the economy.
Despite all recent recession fears, today’s numbers should not mark the end of an almost golden period for the German economy. The economy should re-emerge after a soft patch. The length of the soft patch will to a large extent be determined by the management of the debt crisis. Let’s hope that today’s golden memories are sufficient to bridge the dire straits.