Improvement in German domestic demand could offset China jitters

As the Federal Statistical Office (Destatis) already reported in its first release on 14 August 2015, gross domestic product (GDP) grew by 0.4% in the second quarter of 2015 from the first (after price, seasonal and calendar adjustment).

The positive performance from exports (+ 2.2% qoq) drove Germany’s growth in the quarter: the external sector’s contribution amounted to + 0.7%, which, together with progress in household and government final consumption expenditures, could offset the negative contribution from inventories during the quarter (-0.4% qoq).

According to ACF, the German economy is very dependent on the evolution of exports while domestic demand is not advancing sufficiently (private expenditure only rose by 0.2% from the previous quarter and public spending increased by 0.1%).

Regarding the impact of a possible slowdown in Chinese growth, ACF analysts think this could be offset by the improvement in domestic demand against a backdrop of growth in jobs and increased household confidence. As a result, they believe the growth expectations for the German economy can be met: the European Commission estimates German GDP growth of 1.9% in 2015 and 2.0% in 2016 (vs. +1.6% in 2014).

Moreover, the Ifo Business Climate Index for German industry and trade has risen to 108.3 points in August from 108.0 the previous month. Satisfaction with the current situation has again increased significantly. That said, companies were somewhat less optimistic regarding future business (China is Germany’s third largest trading partner outside Europe).

By industries, the worsening in manufacturing and wholesale was compensated by the improvement in construction and, more particularly, in retailing.