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German economic growth decelerated in the second quarter; however, less markedly than consensus expectations. The economic growth slowed to 0.4 percent on sequential basis, as compared with consensus projection of 0.2 percent and first quarter’s 1.5 percent growth.
The slowdown in the economy reflects sluggishness in the manufacturing sector and a payback to an unusually solid first quarter in the construction activity. Overall, fundamentals are strong; however, the economic growth of Germany is not solid enough to make it a growth engine for the euro zone as a whole, said Nordea Bank in a research report.
Germany’s official statistics office, Destatis, provided some indications regarding the second quarter growth drivers. According to Destatis, private consumption in Germany continued to grow; however, at a slower rate as compared to the first quarter.
Government consumption also recorded a growth in the second quarter. Meanwhile, investment in construction and in machinery and equipment shrank following a strong winter half-year. Net exports contributed positively to the economic growth as exports grew while imports dropped, in contrast to the first quarter.
There are indications that the German economy will continue with the current pace of growth or possibly slightly lower growth in the second half of 2016, stated Nordea Bank. For 2016 as a whole, the German economic growth is expected to expand about 1.75 percent, predominantly driven by private consumption and to a certain extent by investment spending.
The pace of growth is likely to be a bit weaker in 2017 but will continue to be more than the potential growth that is estimated to be around 1.3 percent p.a, according to Nordea Bank.
At present, the German economy generates new jobs at a pace of 1.25 percent over the year. This, along with a lower jobless rate of 4.2 percent is a more relevant indicator for most people. The global scenario, particularly the relative weakness of demand from significant emerging markets for investment goods is a headwind for Germany’s exporters.
