Germany: Economy swings into contraction in the second quarter
According to a preliminary estimate, the economy returned to the doldrums in the three months to June, contracting 0.1% on a seasonally adjusted quarter-on-quarter basis. The reading fell short of both the 0.2% expansion of the previous quarter and market expectations of a 0.1% increase. As a result, Germany remained the Euro area’s worst-performing large economy.
On an annual basis, economic activity rebounded 0.3% in Q2 from the previous quarter’s upwardly revised 0.8% decline.
While not providing a complete breakdown, the statistical office noted that Germany’s quarterly downturn partially reflected declines in fixed investment in construction plus machinery and equipment.
A complete breakdown of the GDP figures will be released on 27 August.
Our panelists expect the economy to return to growth in sequential terms in the third quarter amid healthier private spending and fixed investment. That said, quarter-on-quarter growth will remain shallow. Over 2024 as a whole, our Consensus is for the economy to bounce back, although a weaker-than-expected Chinese economy is a key downside risk.
Analysts at the EIU commented:
“We continue to expect an acceleration in real GDP growth later this year and into 2025, in line with a cyclical recovery across Europe helped by slowing inflation and continued monetary policy easing by the European Central Bank (ECB). We expect that new wage agreements by industry associations will bolster wage growth, feeding into higher disposable income and consumption.”