The German economy turned in a surprisingly strong start in 2016. But this energetic beginning is deceptive. The relatively weak development of the global economy and the weak dynamics of global trade are putting a strain on export companies. And the strong domestic economy will not be capable of completely offsetting the negative external balance.
According to the estimate by the Federal Office of Statistics released on May 24, Germany’s gross domestic product grew by 0.7 percent over the previous quarter. The mild winter fostered brisk construction activity, and companies invested heavily in equipment.
This led to an impressive 2.3-percent increase in gross investments, which is significantly more than the 0.7 percent predicted by the Handelsblatt Research Institute. But the increase is mainly attributable to pull-forward effects. This theory is supported by incoming orders in manufacturing, which shrank by a notable 2 percent in April.
This is why the HRI sees no reason to discard its previous view of the business cycle for 2016 and 2017. We are sticking to our contention that the export economy, the traditional driver of growth, is consistently under-performing, due to weak global growth. The development of the external balance, that is, the balance of exports and imports, validates this assessment. We are adhering to this skeptical view for the next 18 months.