Forex - Preview: - Germany Q3 GDP expected to fall by 0.1% q/q


 11:01 (GMT) 07 Nov

  [Economic Data]

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We expect German real GDP to have contracted by 0.1% q/q in Q3 as it did in Q2, thus pushing the economy into a technical recession. The economy would therefore be 0.5% higher than in Q3 2018, when it also recorded a 0.1% q/q fall.

Preview: - Germany Q3 GDP expected to fall by 0.1% q/q (0101-PQNT-C01)

We expect consumer spending to have contributed positively to growth although at a slightly slower rate than the 0.4% q/q averaged in H1 as consumers' confidence declined in Q3. In particular, households appear to be more worried about the economic outlook and expect unemployment to rise over the next 12 months. However, consumers maintain solid expectations about their personal financial conditions although they indicate that they are less likely to be able to save over the next 12 months.

Investment spending grew robustly in H1 at an average pace of 0.7% q/q, marking a slight decline from the 1.0% q/q recorded over the balance of 2017-18. However, investment spending in H1 was particularly strong in Q1, up by 1.6% q/q, and virtually flat in Q2. We therefore expect a modest rebound in investment spending in Q3 as construction picks up after the 1.0% q/q fall in Q2, supported by still elevated, albeit lower, levels of confidence in the sector. Investment spending in machineries is set to remain subdued on account of the further weakness in industrial confidence reported in the past few months. Businesses have seen domestic and exports orders falling and do not expect activity to get better over the next 12 months. This is hardly an incentive to invest, especially when capacity utilization in manufacturing has fallen below its long-term average.

On the output side, industrial production fell by 1.2% q/q according to provisional estimates, which follows a 1.9% q/q fall in Q2 and a 0.7% fall in Q1. Manufacturing was the driver of such a downbeat performance, with production in this subsector falling by 1.0% in Q3, but it was also accompanied by a contraction in energy production, by 4.0% q/q, and by a decline in mining and quarrying of 3.6% q/q.

On the services side, activity is likely to have slowed in Q3, according to a range of survey data. We expect activity to have slowed particularly for services more directly exposed to manufacturing, like professional and administrative activities and transportation.

All in all, the resilience of the services sector and domestic demand in general should keep the economy afloat, avoiding a sharp deterioration of overall activity in Q3. However, such resilience will be tested more in Q4 if manufacturing output falls further.

Although the government has ample fiscal space to support the economy, it looks unlikely to intervene in any meaningful way. Some fiscal loosening would not only have direct impact on the economy but also lift businesses' expectations knowing that they could count on the government to support the economy in a slowdown.


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