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German economy grows strongly in Q1 2019, likely to stagnate or contract in Q2

German second quarter economic growth, on a seasonally adjusted basis, grew strongly. On a quarter-on-quarter basis, the GDP grew 0.4 percent, coming in line with consensus expectations. The Federal Statistical Office showed that the rise was mainly driven by domestic demand, namely construction investments, business investment and private consumption.

Construction investments are estimated to have risen 3.5 percent in the first quarter, owing to the mild weather. This added about 0.3 percentage points to the economic growth. Without the rise in construction, the German economy would have expanded only marginally in the March quarter, noted Commerzbank in a research report.

The positive weather effect is expected to disappear in the second quarter, depressing economic growth. Furthermore, the industrial orders dropped 4.1 percent quarter-on-quarter in the first quarter. The trend for industrial production calculated on the basis of these new orders is evidently pointing downwards. This gives reason to fear a fall in production in the second quarter, which had temporarily stabilized in the first quarter. GDP growth is likely to stagnate or even contract in the June quarter.

A sustained rebound is unlikely until the second half of 2019. The Chinese economy, whose downturn had considerably added to the global recession in the manufacturing sector, should then respond to the government’s comprehensive economic stimulus package.

“For the German economy, we continue to expect growth of 0.4 percent this year, although there are certain upside risks”, added Commerzbank.

At 11:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bearish at -59.311 while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 120.415 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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