German economic growth: domestic demand provides a strong boost to growth

According to today’s flash estimate, in Q2 the German economic output increased by 0.6 percent over the prior quarter. This is once again a prime figure, but slightly less than at the beginning of the year. For according to the German Federal Statistical Office, first-quarter growth has been revised marginally upwards to +0.7 percent. Domestic demand has once again been the motor driving growth.

Exhaustive details have not yet been released but some indications were given on the key growth drivers in the second quarter. Thus, the growth stimuli were entirely domestic: Private and public consumer spending increased and more was invested in plant, equipment and buildings. Foreign trade, by contrast, braked the macroeconomic performance, as the rise in imports was greater than that in exports.

It is not surprising that domestic demand surged again, as the number of employed persons has risen within the year by 664,000 persons or +1.5 percent. The favourable labour market trend forms important bedrock and in the second half should probably also ensure that German consumers continue to be willing to spend. And the positive investments are not really a surprise, either. The ifo business climate index, a key gauge of how the German economy fares, has in recent months climbed from one high to the next.

Today’s provisional results underscore that the German economy is in fine fettle. Growth is similarly high to that seen in Euroland as a whole, which initial calculations at the beginning of the month put at +0.6 percent. While Germany is not leading the growth rankings, it would seem to have sufficient muscle power to pull other EMU-partners upwards with it. This can be seen not least from the surge in growth in imports. Should this trend persist, then the heated debate about Germany’s current account surplus could also lose a bit of its edge.

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