Economic outlook

Strong Start, Weak Finish

ARCHIV - Ein Mitarbeiter von Thyssenkrupp wartet am 08.02.2011 in Duisburg im Stahlwerk Walzenrollen. ThyssenKrupp legt am Freitag (10.08.2012) seine Bilanz für das dritte Geschäftsquartal vor. Foto: Oliver Berg dpa/lnw +++(c) dpa - Bildfunk+++
The year started strongly but dangers lurk.
  • Why it matters

    Why it matters

    High consumer spending, migration costs, inflation and employment are all having an impact on the German economy, meaning economists are still skeptical about growth over the next 18 months.

  • Facts

    Facts

    • Germany’s gross domestic product grew by 0.7 percent in the second quarter compared to the same period last year.
    • This led to a surprise 2.3 percent increase in gross investments.
    • The Handelsblatt Research Institute forecasts 1.5 percent growth for this year and 1.2 percent for 2017.
  • Audio

    Audio

  • Pdf

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.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.