The German economic engine is still running, but not at the same speed as last year. The strain arising from international conditions has not only led to business sentiment dimming, but is also reflected in the “hard” data. This is also shown by the in-part somewhat disappointing June data on industrial output and foreign trade.
However, the past second quarter revealed a slight improvement on the beginning of the year. Industrial output climbed slightly on the quarter as compared to the first-quarter stagnation. The order backlog remains high, even if noticeably fewer orders are now being taken. In other words, a downturn in industry is not in sight, but there is no denying the more moderate pace.
This is primarily the result of a dampened outlook for exports. Between April and June, exports rose again, after having dwindled in the first quarter. In the spring, imports climbed faster than exports, however, so that on balance foreign trade slightly decelerated economic growth.
The German domestic economy is, by contrast, still running smoothly. Above all the construction sector remains a key pillar of growth. In the second quarter, construction industry output surged again, and sentiment among construction companies is buoyant. Retailing is also performing better after the dent seen in the first quarter.
Overall, we expect to see a Q2 macroeconomic growth rate of 0.4%, slightly higher than the 0.3% reported for Q1. Put differently, growth in Germany in the second quarter will have been appreciably stronger than that in France and Italy, which initial estimates suggest will have achieved a rate of 0.2%. Germany should also marginally outperform the Euroland average of 0.3% (according to the flash estimate from Eurostat). The data on German gross domestic product will be released on 14 August.