| German GDP grew even more strongly than we expected in Q2, rising 2.2% q/q in Q2 |
| 13.08.10 10:04 | ||||||
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German GDP grew even more strongly than we expected in Q2, rising 2.2% q/q in Q2; on track for 3%+ expansion this calendar year Bottom line: German GDP was estimated to have risen by 2.2% q/q in Q2, the quickest quarterly pace for united Germany and quickest since Q1 1991 if we use the historic western Laender series. It was therefore stronger than our projection (1.7%, which was the second strongest estimate (out of 33) in the Bloomberg survey, which had a consensus of 1.3%). It puts German GDP on track to grow around 3% or even slightly more for this calendar year, significantly stronger than our prior estimate (2.4% and the consensus, 2.0%). The result should assist the process of German deficit reduction and in turn foster a climate where Germany is yet better able economically and politically to offer support to other euro area economies that might require assistance. In detail As is usual for the release of the "flash" GDP estimate, the FSO gave only a qualitative assessment of the contributions of the components, observing that there was a positive contribution to GDP from household and public consumption, with "dynamic trends" in capital formation (i.e. investment) and foreign trade contributing the most strongly. This composition is very much in line with the reasoning behind our estimate, which envisaged a particularly strong surge in capital goods spending (based on the surge in new orders), while we had expected a rebound in construction after the weather-depressed Q1 decline. Additionally, the FSO undertook a series of revisions to the historic German data. The main impact of these was to raise the Q1 10 GDP q/q gain from 0.2% to 0.5%, and the Q4 09 estimate from 0.2% to 0.3%. Hence the y/y rate for Q1 was revised (on the calendar and seasonally adjusted basis) to 2.0% from 1.5%, while the y/y rate for Q2 was 3.7%. The upward revision is not so surprising since it brings the expenditure-based GDP estimates more in line with the value-added estimates. The revisions mean that GDP in 2009 is now considered to have declined by 4.7% rather than by 4.9% (while the 2008 growth is revised down from 1.0% to 0.7%, all on a calendar adjusted basis). The impact of the revisions means that our projection for annual average GDP expansion this calendar year (working day adjusted) could be 3.2%, if German GDP grows at 0.5% q/q in Q3 and Q4, which seems a reasonable assumption without having more quantitative information on the composition of GDP at this stage. Such annual growth would therefore be significantly stronger than our above-consensus estimate (2.4%) and the latest Consensus Economics consensus (2.0%). The other quantitative information provided today is that nominal GDP grew by 2.3% q/q in Q2, i.e. the GDP deflator grew by 0.08% q/q after 0.12% in Q1 and 0.02% in Q4 09. The surge in GDP is a good reason for thinking, as we have argued, that the German general government deficit this year is likely to surprise significantly on the downside, coming in closer to 4% than 5%. In turn the rapid gain in German economic momentum is important for the coherence of EMU, since it provides an important political and economic anchor for Germany to be able to provide support to other peripheral economies were they to encounter funding difficulties. Our tracking estimate for euro area "flash" Q2 GDP is now at 0.89%, higher than previously (0.76%). This may get revised following other GDP estimates (including France at 7.45am, Austria (and Spain) at 8am, and the Netherlands at 8.30am. source: BarCap
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