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The German Bundesbank in it's monthly report said that Germany's growth in the third quater may be somewhat slower than the first half of the year. The central bank said the economy is on a 'sound' path driven by household consumption'

Germany Households and Debt

Germany is Europe’s largest economy and has proven to be it's backbone. Growth was higher than expected in the second quarter,  with fears that hit the euro zone issues such as Italy and Brexit would hamper growth. The Buba saw weak factory orders among the key drivers for slower Q3 growth in Germany.

They did say that trade conflict has not been the main driver of declining manufacturing sentiment. That is for now however and disputes could place a considerable strain on global economic growth

“The German economy should remain on a solid growth path in the third quarter .... However, the pace of expansion could be slightly lower than the average rate in the first half of the year.”  Bundesbank 

The German economy grew by 0.5 percent in the second quarter and 0.4 percent in the first, with underlying growth momentum only “marginally” ahead of what the Bundesbank considers to be the economy’s potential. In Germany, private consumption would continue to drive growth. “(It) ...should benefit from a strong labor market and strong wage increases, thus retaining its role as a key pillar of growth,” the Bundesbank added.

The bank forecast that the German government budget surplus would rise further this year and its debt could fall close to the European Commission’s benchmark of 60 percent of GDP by end of the year. The European Central Bank has eased back stimulus in several steps arguing that the EU can afford somewhat less support after years of extraordinary help.

Frankfurt am Main | 20.08.2018 The German economic boom continues

After the year got off to a moderate start, the German economy rebounded quite strongly in the second quarter of 2018. “This meant that the economic boom in Germany was still ongoing”, the Bundesbank’s economists write in the August issue of the Monthly Report. According to the Federal Statistical Office’s flash estimate, the growth rate of real gross domestic product (GDP), after adjustment for seasonal and calendar effects, rose slightly on the quarter to 0.5%. According to revised figures published by the Federal Statistical Office, GDP rose by 0.4% in the first three months of the year

Private consumption a mainstay of economic activity

Positive contributions came primarily from Germany in the second quarter. Private consumption – currently the linchpin of economic growth – continued its ascent in the spring, according to the Monthly Report. The Bundesbank’s experts added that government consumption likewise rose significantly following a distinct decline in the previous quarter, the first in many years. Moreover, exports grew moderately following a drop at the beginning of the year. According to the Bundesbank’s experts, the same is probably the case for commercial investment in machinery and equipment.

Still on a sound growth path

In the Bundesbank’s estimation, the German economy is likely to remain on a sound growth path in the current quarter, too. However, according to the Monthly Report, the pace of growth could end up being somewhat slower than the average for the first half of the year. The experts are accordingly not expecting industry to make any meaningful contribution to aggregate growth. Although the stock of orders still being processed remains high and short-term output expectations have stabilised at an elevated level, new orders received by industry were down in the second quarter as well, according to the report. “Private consumption, on the other hand, is likely to benefit from the excellent labour market situation and the current strong wage hikes, thus maintaining its role as a key driver of German economic growth”, according to Bundesbank economists.

Favourable employment situation

The Bundesbank assesses the situation in the labour market as remaining very favourable. However, it did not improve as much as in previous quarters, according to the report. Although employment rose markedly, the growth was no longer as buoyant as in previous quarters. Unemployment likewise did not fall as sharply in the reporting quarter as in the winter. “On the whole, the outlook for the labour market remains good”, according to the Bundesbank’s economists. In the Bundesbank’s assessment, wages picked up strongly in the second quarter, with negotiated rates of pay (including all additional benefits) up by 3.2% on the year, a significantly higher rise than a quarter earlier.

Moderate growth in the euro area

According to the Bundesbank, the forces fuelling economic activity are still intact despite a slowdown. “The unabatedly positive sentiment among businesses and consumers suggests that the economic upturn in the euro area will continue”, according to the Monthly Report. According to figures published by Eurostat, the statistical office of the European Union, seasonally adjusted GDP rose by 0.4% on the quarter in the second quarter. Compared with the same quarter last year, this was a 2.2% increase.

Global economy brisker again

The Monthly Report also looks at global economic developments. Following a slight slowdown in growth over the past few quarters, global economic activity rebounded in the second quarter of 2018, according to the Bundesbank's experts. In their report, however, they warn that an escalation of trade policy conflicts could weigh considerably on the global economic upswing.

Bundesbank chief Jens Weidmann will be on the wires later in the day at 1800 GMT.

Source Bundesbank

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