Blog Carsten Brzeski

German soft landing in 3Q confirmed

The second estimate of Germany’s 3Q GDP did not bring any shocking news. Growth came in at 0.2% QoQ, from 0.4% QoQ in 2Q and 0.7% QoQ in 1Q.

The main growth drivers were public (+1.0% QoQ) and private (+0.4% QoQ) consumption as well as the construction sector (0.3% QoQ). At the same time, investments (-0.6% QoQO) and net exports were a drag on growth.

Despite slower growth in the third quarter, the German economy’s performance since the 2008/2009 crisis has been impressive. The economy grew in 27 out of the last 30 quarters, by on average 0.5% QoQ each quarter. Moreover, private consumption has shown the best performance since the initial reunification boom. On the back of the strong labour market, low inflation, low interest rates and higher wages, private consumption is currently experiencing the strongest and longest stretch of consecutive growth since 1992.

Even though the third quarter performance was the result of a Brexit-driven roller-coaster ride, the big picture is still one to be proud of. However, several risks are looming. A move towards more protectionism by Germany’s single most important trading partner (the US), an entire series of political risk events in the Eurozone and Brexit all add to downside risks for the German economy. The biggest risk, however, is a domestic one: next year’s elections. Not so much because of an unexpected populist outcome but because the upcoming election campaign will again postpone important policy decisions and new reforms until after the elections.

At least judging on the basis of the country’s growth performance, Chancellor Merkel was right when she said yesterday that people in Germany had never been better off than currently. However, we don’t need to listen to Nelly Furtado’s music to know that all good things eventually come to an end.