Forex - Germany - Germany Q2 GDP fell by 0.1% q/q due to weak external demand


 07:34 (GMT) 14 Aug

  [Economic Data]

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In Q2, German real GDP contracted modestly by 0.1% q/q after an unrevised 0.4% q/q in Q1.

Germany - Germany Q2 GDP fell by 0.1% q/q due to weak external demand (0101-NLXJ-C01)

The breakdown of GDP growth appears less worrying than the headline figure as domestic demand provided a positive contribution, supported by higher consumer and government spending than in Q1. Investment spending increased too, but declined in construction following an acceleration in Q1, when it grew by 1.9% q/q and an average of 1.0% q/q in 2018, possibly as a result of milder winter that allowed building activity to be anticipated in Q1. Thus, with positive contribution from domestic demand, what determined an overall fall in GDP was a sharp decline in net exports, with exports reported to have fallen more than imports on a quarterly basis.

From an output perspective, with industrial production having fallen 2.0% q/q in Q2 (after a decline of 0.7% q/q in Q1 and an average decline of 0.6% q/q in 2018) and construction output reporting a decline of 1.1% q/q in Q2 after a solid increase of 1.6% q/q in Q1, we can deduce that activity in the service sector remained resilient and expanded further.

German productivity declined in Q2 as the 0.4% q/q (calendar adjusted) growth was achieved with 1.0% more people in work, as employment reached 45.2 million.

Although dependent on weak external demand rather than domestic issues, the decline in GDP in Q2, the weak start to Q3 and the worsening outlook, as reported by the sharp drop in the ZEW economic indicator to the lowest level since December 2011, may lead the German government to prepare a fiscal policy response. A fiscal stimulus could be defined in the update to the Stability Programme to be sent to the EU in September and then confirmed in the 2020 budget. With the entire government bond curve yielding negative rates, the cost of financing any fiscal support is not an impediment.


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