Popping the corks. The German economy has staged an impressive comeback in the second quarter of this year. According to the first estimate of the German statistical office, the economy grew by 0.7% QoQ. After a downward revision, the economy now stagnated in the Q1. On the year, German GDP is up by 0.9%. The individual growth components will only be released on 23 August but available monthly data and the statistical office’s press release suggest that growth was broadly driven by consumption, net exports and investment, with the catching up of the construction sector playing an important role.
Today’s GDP numbers mark the end of a long rollercoaster ride of the
German economy. Since the start of the year, German macro data has been
highly erratic. Harsh and persistent winter weather, early Eastern,
public holidays and vacation frequently blurred the data. While Q1
figures understated the real strength of the economy, today’s numbers
are somewhat too exaggerated. Looking ahead, the German economy should
settle down to a growth rate of around 0.4% QoQ in the second half of
the year. Such a growth path would be consistent with continued solid
consumption driven by low unemployment, a further pick up of the US and
UK economy and a soft landing of the Chinese economy.
The biggest domestic challenge remains weak investment. Despite very
favourable financing conditions and strong international positions of
many German companies, domestic investment has been sluggish for a
longer while. Reasons behind the weak investment performance have been a
preference for foreign rather than domestic investments in the private
sector and a significant reduction of public investments. One way or the
other, the next German government will have to address the issue of
domestic investment to ensure Germany’s leading economic role.
At least for the time being, the German economy has returned as the big
stronghold, not only for the Eurozone but this time around even for the
global economy. Up to now, Germany has outperformed most of its G7
peers, at least in the second quarter. For the Eurozone, this morning’s
numbers are also good news. Thanks to Germany, the entire Eurozone
should have left the record-long recession. Of course, the Eurozone
still has a long way to go before positive growth numbers can honestly
be called recovery but relief should stand above skepticism, at least
for one day.