German Economy Set to Rebound after Disappointing Q1

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The German economy grew slower than expected in the first three months of 2018, federal statistics authority Destatis said Tuesday, disappointing analysts' forecasts.

Observers nevertheless remain confident for a rebound in Europe's powerhouse economy over the remainder of the year, even if the threat of an unprecedented EU-US trade war could jeopardise the outlook.  

The German economy expanded by 0.3 percent quarter-on-quarter between January and March, adjusting for price, seasonal and calendar effects, federal statistics authority Destatis said.

That was half the pace seen in the previous three months, and analysts surveyed by data company Factset had predicted growth of 0.4 percent.

Destatis noted that the 15th consecutive quarter of growth made the present economic upswing "the longest since 1991" -- just after the reunification of the country's East and West.

The statisticians highlighted "positive impulses" from the domestic economy, as firms increased investments in buildings and equipment and households slightly increased consumer spending.

But government spending fell slightly for the first time in almost five years, weighing on growth, while both imports and exports fell back over the quarter compared with the period from October to December.

A weaker performance in the first quarter was "inevitable given the weakness of previously published monthly data," Capital Economics analyst Jennifer McKeown noted.

She also pointed to one-off factors that likely weighed on economic activity, such as the cold winter weather, the early timing of the Easter holiday, strikes and a widespread flu outbreak.

- Signs of a rebound? -Some observers fear a wider slowdown could be coming for Germany and the 19-nation eurozone after an unexpectedly sparkling year in 2017.

Surveys of business, investor and consumer confidence "have weakened lately, suggesting that underlying activity is not as strong as it was last year," McKeown pointed out.

The euro's strength against the dollar could sap foreign demand for the exports of the countries that are members of the single currency. 

And the European Union has secured only a temporary reprieve from tariffs on metals imports into the United States proposed by US President Donald Trump, which could yet ignite a transatlantic trade war.

Nevertheless, "a closer look at the German economy shows promising signs of a rebound in the coming months," ING Diba bank economist Carsten Brzeski commented.

"Uncertainties and risks remain," mainly relating to trade, he conceded, but "there is little reason to doubt the underlying strength of the current recovery".

Companies in Germany's key industrial sector are running at close to full capacity, with full order books for the coming months suggesting there will be no let-up in production and companies' thirst for credit to finance their growth will remain unslaked.

Shortages of skilled labour and equipment rather than a lack of demand are the biggest limiting factors for German companies at present, Brzeski said.

"There are some good reasons to expect German growth to pick up in the rest of this year" such as plans to increase spending on pensions and family benefits under Chancellor Angela Merkel's fourth government, McKeown agreed.

Meanwhile faster growth in some of the country's biggest trading partners should fire demand for its export products once again.

"Renewed strength" in Europe's largest economy should help stiffen the resolve of the European Central Bank to withdraw some of its massive post-crisis stimulus to the eurozone by the end of the year, McKeown predicted.

Comments 1
Thumb chrisrushlau 7 months

Fascism tends to collapse under its own weight. Until NATO renounces, well, NATO, and its aggression, Europe will wither on the vine.