German economy likely expanded 0.4 pct in Q4, domestic demand to have mainly driven growth

The German economy is expected to have expanded in the fourth quarter. According to a Societe Generale research report, the German GDP is likely to have grown 0.4 percent sequentially in the fourth quarter, slightly weaker than the earlier expectation of 0.6 percent. The reason behind the slightly subdued expectation is the soft retail sales and industrial production data for December. While these data might be upwardly revised, the lower number of working days in December is expected to be a huge drag on the fourth quarter industrial production and therefore motivate a lower GDP growth forecast, stated Societe Generale.

However, with the abundance of positive data, the drop in industrial production in December is mostly technical and is expected to reverse immediately in January. The underlying story of a very strong German economy operating above its potential is thus unchanged, with few repercussions for the growth expectations for 2017 and beyond.

Domestic demand is expected to have mainly driven the German economic growth in the fourth quarter with a solid growth of both public and private consumption and machinery and construction investment. Net exports are likely to have been widely neutral, whereas inventories might have reduced growth slightly.