German economy expands modestly in Q4 2018, growth likely to slow further in 2019

German economy grew modestly in the fourth quarter of 2018. The initial estimate of full-year GDP came in line with expectations, recording a year-on-year growth of 1.5 percent. This is the softest in five years. In spite of strong growth in real disposable incomes in the midst of record-high employment and strong wage growth, private consumption decelerated to 1 percent year-on-year, the weakest rate since 2014, as households raised their savings by the most in four years.

Investment growth continued to be strong, rising 0.1 percentage points to 3 percent year-on-year, while inventories positive contributed 0.4 percentage points to the GDP growth. However, the deceleration in economic activity showed a marked slowdown in the contribution from net trade – having positively contributed 0.3 percentage points to economic growth in 2017, net trade negatively contributed 0.2 percentage points last year, as exports decelerated more abruptly than imports, noted Daiwa Capital Market Research in a report.

In the meantime, government consumption’s contribution to the growth eased to 0.2 percentage points, the least in five years, as firm growth in revenues saw the general government budget surplus rose 0.7 percentage points to 1.7 percent of GDP, the biggest since reunification, contrary to the small fall targeted.

“Following the 0.2 percent Q/Q decline in GDP in Q3, today's full-year GDP figure implies a modest rebound in GDP in Q4 - we forecast an expansion of just 0.2 percent Q/Q”, said Daiwa Capital Market Research.

Private consumption growth is expected to be limited by a desire to increase savings, while export growth is likely to stay weak because of soft global demand. The GDP growth of 0.3 percent quarterly in each quarter of this year is expected, which would result in a further sowing from 2018 to full-year growth of only 1 percent year-on-year.

“But we also expect the budget surplus again to exceed the Government's 1.0 percent of GDP target”, added Daiwa Capital Market Research.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bearish at -155.777, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 148.925. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex