German economic growth weakens slightly in the third quarter, but domestic demand remains robust

The growth in Germany’s gross domestic product shifted down another gear in Q3 2016. Having increased by +0.4 percent in the second quarter, macroeconomic output between July and September only rose by +0.2 percent. As is customary with flash estimates, no exact details have been released on the development of the individual components. According to data from the German Federal Office of Statistics, foreign trade environment acted as a brake, as exports contracted slightly, while imports climbed somewhat. As in past quarters, the key pillars of growth were government and private consumer spending. Construction investments probably also edged up, with by contrast less being invested in plant and equipment.

In the wake of a strong opening to the year with growth at +0.7 percent and a robust Q2 performance, the largest economy in Europe is running slightly out of steam. It is no great surprise that there is now no boost from foreign trade, as for some time now global trade has ceased to provide positive stimuli. And if domestic demand continues to thrive with robust consumer spending then imports likewise rise. Which is the good news behind the growth report: Germany’s domestic economy is running well. Private consumer spending continues to increase as the German labour market remains in fine fettle. A total of 43.7 million persons in gainful employment delivered a boost in economic output in the third quarter, a figure just short of 390,000 higher than one year earlier. It is also good news to hear that investments in the construction sector are still heading north. Ongoing weak investments in plant and equipment remain a sore point though.

Survey-based indicators such as the ifo business climate index had in the interim pointed toward growth weakening in the third quarter. And indeed, the uncertainty in July and August caused by the Brexit vote impacted on sentiment among company executives. The dip that resulted from this uncertainty now seems to have been overcome. The yardsticks for German economic sentiment have bounced back since the beginning of the fourth quarter. As a consequence, the current quarter should not weaken any further.

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