Last week, we learned that German GDP increased by 0.7% over the quarter in Q2. Detailed data published today presented no surprise but they are worth mentioning as there is good news boding well for future growth.
Domestic demand contributed most (0.5 percentage points) to the quarterly increase in GDP. Private consumption is now the most important engine of the German economy, driven by a healthy increase of disposable income. Investment spending for machinery and equipment rose for the first time after since Q3 2011. It seems that the reluctance of German companies to invest is easing at last. The catch-up effect in the construction sector after the long winter is probably over, but as interest rates are likely to remain relatively low, there is no reason to expect construction investment to dive in the coming quarters.
Finally, exports increased a bit more than imports. A marked slowdown in China poses a risk to the German manufacturing sector as does the situation in the Euro area. But as long as China slows down only gradually and the European crises countries continue to stabilise, the outlook for German exports is positive.
Positive is also the key word when looking at public finances: On the general government level, the surplus for the first half of the year amounted to € 8.5 bn, ie 0.6% of GDP. Tax receipts were up 3.4% over the first half of 2012. Interest payments (-3.9%) and general government expenditure on gross capital formation (-0.9%) were markedly down again. Public investment in Germany has been very weak for quite a while. The main reason is that the bulk of public investment is done by municipalities. Many of them have to cut back their investment spending as a consequence of their debt load.
All in all, good news for Germany and Europe – and for Angela Merkel when it comes to the general election which is less than a month away now.
_____________________
GDP details for Q2 (% q/q):
Real GDP: 0.7%
Private consumption: 0.5%
Public consumption: 0.6%
Gross Fixed Capital Formation / Total: 1.9%
Gross Fixed Capital Formation / Equipment: 0.9%
Gross Fixed Capital Formation / Construction: 2.6 %
Exports: 2.2%
Imports: 2%
Contribution of net exports: 0.2 percentage points
Nordea