German economy remains solid

The German economy is growing at a solid pace. However, the gross domestic product (GDP) data and the ZEW’s economic expectations published today would imply that it is not expected to accelerate further for the time being. While GDP gained 0.4 percent in the final quarter of 2016, the economic expectations of the financial analysts surveyed by the Mannheim-based ZEW are somewhat more sceptical for the months ahead.

The pace of macroeconomic growth picked up again in the second half of 2016. Having increased by only +0.1 percent q-o-q in the third quarter, the growth rate climbed to +0.4 percent in the fourth quarter. Although this is minimally weaker than expected ahead of the analysts‘ consensus (+0.5 percent), it is nonetheless a solid result. Annualised, growth was still 1.7 percent at the end of last year.

The domestic economy provided positive growth impetus at the end of 2016: public consumption expenditure rose significantly, according to the statisticians, and private households also spent more than in the previous quarter. Investment in construction was also much higher than in the third quarter of 2016. On the other hand, the economy was depressed by foreign trade, as price-adjusted imports increased at a much greater pace than exports compared with the previous quarter. This reduced the high trade surplus somewhat, which corresponds with the international demands placed on Germany.

However, it is evident from the ZEW surveys on economic expectations – which had fallen in February to their lowest level since last October – that growth is unlikely to accelerate in the coming months. Above all, political uncertainties in relation to the new US governments and the forthcoming elections in Europe are likely to have played a role here. All in all, the positive global economic environment coupled with the favourable domestic economic climate suggests that we will continue to see robust growth in Germany.

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