German economy leaves contraction, but only barely

The German statistical office just released its first estimate of 1Q GDP growth, showing that the economy has left contractionary territory. German GDP grew by 0.1% QoQ in 1Q, from a 0.7% decline in the final quarter of 2012. On the year, the economy shrank by 1.4%. The GDP components will only be released on 24 May but available monthly data and the statistical office’s press release suggest that consumption was the sole growth driver. Investment and construction were drags on growth.

The first three months of the year were bumpy but at least ended with a small happy end for the economy. Hard data could not entirely live up to the expectations soft data had raised. The reason for this decoupling of hard and soft data is clearly the weather. The harsh winter weather did not only affect the construction sector but indirectly also other sectors.

Looking ahead, prospects for the German economy are further clearing up. The industry is gaining pace as order books have started to fill again and companies are cautiously stepping up their investment plans. Moreover, domestic demand with the solid labour market and wage increases have become a reliable growth driver.

All in all, the German economy has left recessionary territory quickly again, even if it has not been a vintage performance so far. The strong interconnection between the German economy and the weather remains remarkable. Not only has the harsh winter weather taken a huge toll on the entire economy, the economy also seems to copy recent weather variations. In fact, maybe the recovery is just like this year's springtime. First it is delayed, then it comes with ups and down and when it is finally here, hardly anyone notices.