Second reading confirms GDP declined in Q2

GDP reading: A second reading confirmed that the German economy contracted 0.1% on a seasonally adjusted quarter-on-quarter basis in the second quarter, deteriorating from the 0.2% expansion logged in Q1 and surprising markets on the downside. On an annual basis, GDP rebounded 0.3% in Q2 from Q1’s 0.8% fall and marked the best result since Q1 2023.

Drivers: Domestically, the quarterly downturn largely reflected a 2.2% fall in fixed investment (Q1: +0.1% s.a. qoq), which marked the worst reading in nearly three years and was underpinned by sharp declines in capital outlays in construction plus machinery and equipment. In addition, private spending swung into a 0.2% contraction (Q1: +0.3% s.a. qoq), likely due to plummeting real wage growth, tight financing conditions and an elevated unemployment rate. More positively, government spending bounced back, growing 1.0% in Q2 (Q1: -0.1% s.a. qoq). On the external front, net trade subtracted 0.1 percentage points from the reading, having added 0.2 points in the previous quarter. Exports of goods and services fell 0.2% on a seasonally adjusted quarterly basis in the second quarter, which contrasted the first quarter's 1.3% expansion. Meanwhile, imports of goods and services posted a flat reading in Q2 (Q1: +0.8% s.a. qoq).

GDP outlook: Our Consensus is for a shallow rebound in the third quarter as slower price pressures fuel an improvement in private spending. Moreover, our panelists expect exports to bounce back, spearheaded by healthier EU demand and recovering industrial sector output. That said, economic growth will remain uninspiring in 2024, and Germany will again be among the worst performers in the Euro area.

Panelist insight: Commenting on the outlook, ING’s Carsten Brzeski said: “With disappointing second-quarter growth and almost all confidence sentiment indicators pointing south, the German economy is currently back where it was a year ago: stuck in stagnation as the growth laggard of the entire eurozone. Still, we are not ready, yet, to give up on at least some optimism for the second half of the year. The highest increase in real wages in more than a decade could still open German consumers’ wallets and there only needs to be a small improvement in industrial orders to bring the long overdue turning of the inventory cycle.”

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