Investments remain weak spot
German growth normalisation confirmed. The second estimate of Germany’s 2Q GDP did not bring any shocking news. Growth came in at 0.4% QoQ, from 0.7% QoQ in 1Q and the main growth drivers were public (+0.6% QoQ) and private (+0.2% QoQ) consumption as well as net exports. Particularly, private consumption has been on the strongest consecutive growth path ever since German reunification. At the same time, however, investments – and not only activity in the construction sector – turned out to be a drag on growth.
Looking ahead, private consumption should remain an important growth driver on the back of low inflation, low interest rates, low unemployment and higher wages. In addition, at least in the short run, the refugee crisis will continue to support domestic demand (as already illustrated by strong public consumption numbers over the five quarters) and the construction sector should rebound quickly after the technical correction on the second quarter. The economy’s Achilles’ heel, however, remains the lack of new investment. To kick-start investment in an ageing economy, some government support is needed. Not only at the national level but also at the European level. In our view, a clear vision for Europe, or at least for the Eurozone, would as so many aspects of the never-ending euro crisis clearly benefit the German economy. It would add to the economy’s attractiveness for international investors. In this regards, it is desirable that on her almost Olympic diplomatic travels over the next days, German chancellor Merkel manages to quickly fill the page that French president Hollande, Italian prime minster Renzi and she herself left blank earlier this week.