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The second estimate of first-quarter GDP growth did not show any changes to the headline figure for German economy as GDP growth came in at 0.3% quarter-on-quarter, from 0.6% QoQ in the final quarter of 2017, explains Carsten Brzeski, Chief Economist at ING.

Key Quotes

“The weakest quarterly performance since 3Q16. Still, on the year, growth came in at 2.3%.”

“The first quarter was also a quarter of “firsts”. The first drop in government spending since 2Q13 (-0.5% QoQ), the first drop in exports since 3Q16 (-1.0% QoQ) and the first drop in import since 2Q16 (-1.1%). The drop in exports, in particular, could be a first sign that the appreciation of the euro in 2017 has started to leave its mark on the economy.”

“The German economy has now grown for 15 consecutive months, the longest lucky streak since reunification. Of the last 36 quarters, the economy grew in 33. Even better, strong private consumption, the pick-up of investments and low inventories still bode well for the German growth outlook. Therefore, we stick to our view that once the one-off effects of the first quarter have disappeared, the German economy should rebound in the coming months and quarters. However, admittedly, the ongoing slide in confidence indicators, higher oil prices, Italian politics and the ever-accelerating trade tensions could delay this rebound.”

“Being a bit more specific, the biggest domestic problem for the German economy is that it is almost literally coming apart at the seams. Demand is as insignificant a problem as in the first years after reunification. Instead, supply-side factors are increasingly hampering Germany’s growth prospects.”