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Carsten Brzeski, chief economist at ING, notes that the just released second estimate of German 2Q GDP data shows that not all was bad as the economy still contracted by 0.1% quarter-on-quarter, which is 0.4% year-on-year.

Key Quotes

“The details of the growth components show that the contraction was almost exclusively driven by weak exports. Domestically, only the construction sector disappointed, which was more the result of an unusually strong first quarter than a more general downswing in what is probably Germany’s last booming sector right now.”

“While at second glance the 2Q GDP data has some bright spots, the short-term outlook for the German economy remains bleak.”

“On the back of weak confidence indicators, the risk of another contraction of the economy in the third quarter and hence a technical recession has recently increased, not decreased. The resilience of the domestic economy against the industrial slowdown and external woes has only started to weaken since the summer. And while there could be a rebound in the construction sector in 3Q, high inventories in 2Q and little sign of exports rebounding significantly make another stagnating quarter very likely.”