Tuesday 19 / November / 2024
Warsaw: German growth slowed less than predicted in the second quarter signalling diverging fortunes for two of the region’s biggest economies as they brace for any fallout from Britain’s decision to leave the European Union.
Germany’s gross domestic product (GDP) rose a seasonally-adjusted 0.4 per cent in the three months through June, following an increase of 0.7 per cent, the Federal Statistics Office (FSO) in Wiesbaden said on Friday. That’s twice the rate economists forecast in a Bloomberg survey.
With GDP also stagnating in France, which reported initial data last month, and the Greek economy probably back in recession, Germany’s role in keeping the euro-area recovery on track has risen as risks related to the outcome of Britain’s referendum cloud the outlook. The Bundesbank is counting on record-low unemployment and rising wages to bolster output over the summer months and has predicted a pickup in the third quarter.
Excellent financing
"Brexit-related uncertainties will weigh somewhat on German and euro-zone sentiment and growth in the second half of the year,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note. "However, solid domestic fundamentals, a buoyant labor market, rising real incomes, a modest fiscal stimulus and excellent financing conditions should underpin a return to trend growth.”
Bundesbank President Jens Weidmann has been adamant that the Brexit vote won’t jeopardise the recovery, and corporate Germany agrees. Companies from Siemens to Evonik Industries have struck a positive tone in earnings reports over the past weeks, even though they warned that uncertainty in the aftermath of the UK’s June referendum may alter prospects — the country is the third-largest destination for German exports.
"It’s a positive surprise and overall the German economy has been steering the course in the second quarter,” said Andreas Rees, an economist at UniCredit in Frankfurt. "This is backward looking of course and we can see that net exports contributed to growth, but it’s very likely in the second half of this year that domestic demand will be picking up again and it will be strong enough to weather any negative impact from Brexit.”
Export gains
German growth in the April-June period was driven by net trade as exports rose while imports slid, the statistics office said. Private and government consumption also supported the expansion. Equipment and construction investment damped output.
European Central Bank President Mario Draghi has said he’s ready to act if a faltering recovery weighs down inflation, with the Frankfurt-based central bank scheduled to set policy on Sept. 8. The Bank of England has already cut rates to a record low in a package of stimulus measures.
Still purchasing managers in the euro area surveyed in July reported accelerating output, and a European Commission survey showed economic confidence unexpectedly increased. One reason for optimism may be full order books, which are set to shield manufacturers from potentially dwindling demand for another four months.
German consumers are similarly unfazed. Unemployment extended its decline in July, with the jobless rate at the lowest since reunification. A GfK study showed 95 per cent of the country’s citizens don’t see their jobs at risk after the UK referendum, even though more than half are worried that the economy will suffer.
"In some sectors, such as the automotive one, they will think a lot about it, but in other sectors it’s more than compensated by strong domestic demand,” Jens Kramer, an economist at NordLB in Hanover, said before the report. "Labour-market conditions are very good. People have jobs, they have money and they want to spend it.”
