Roller-coaster ride ends with soft landing. The German economy slowed down again in the third quarter, with GDP growth coming in at 0.2% QoQ, from 0.4% in the second and 0.7% in the first quarter. A real soft landing.
After a strong first half of the year, the German economy posted the expected next stage of a gradual growth slowdown in the third quarter, according to data just released by the German statistical agency. With quarterly growth at 0.2%, from 0.4% QoQ in Q2, and annual (and working-day adjusted) growth at 1.7%, from 1.8%, the German economy continued to lose momentum. Details of 3Q GDP will only be published at the end of the month but available monthly indicators and the statistical office’s statement suggest that domestic consumption, public consumption and the construction sector were the main growth drivers.
Brexit meets solid domestic economy. This is probably the best description of the German economic performance during the third quarter. Even though households and companies probably didn’t feel it, monthly hard economic data had suggested a real roller-coaster ride of the economy, with permanent ups and downs. Today’s GDP growth puts a conciliatory end to an exciting quarter.
Looking ahead, the domestic part of the economy should be strong enough to ensure solid – though possibly sub-trend - growth in the quarters ahead. However, if Germany’s single most important trading partner, the US, really moves towards more protectionism, this would definitely leave its mark on German growth. Increased uncertainties stemming from the Brexit negotiations and continued structural weaknesses plus upcoming elections in many Eurozone countries add to the downside risks for the German economy. Maybe the biggest risk is the upcoming elections in Germany itself. Not so much because of an unexpected populist outcome but because the upcoming election campaign will again postpone important policy decision and new reforms until after the elections. Slowly, time is running out and the risk that the lows on the next rollercoaster ride are more punctuated than the highs is increasing.