Bottom line: German Q2 GDP was confirmed at 2.2% q/q, with Q1 at 0.5% q/q, in line with the "flash" estimate. The data show that domestic demand expanded by 1.4% in Q2 after 1.7% in Q1, led by investment, but with both private and public consumption also contributing positively.

The composition was broadly in line with our expectations and suggests that Germany can continue to experience positive GDP expansion during H2, which in turn should make GDP expansion of around 3% for 2010 versus 2009 easily attainable (BarCap current forecast: 2.9% y/y).
 
The FSO also released data on the general government deficit during H1, which showed that it amounted to only 3.5% of GDP on an NSA basis. We estimate that on a seasonally adjusted basis, excluding special factors (on the one hand, the receipt of wireless network licence fees, on the other, some costs associated with a bad bank), it was about 3.9% of GDP - in line with our estimate that this year's German deficit is likely to come in around 4% of GDP, rather than the 5.5% estimate that is generally used by international organisations and was in the government's stability programme.
 
On an encouraging note, there was a significant decline in the German household saving ratio, which appears simply to result from growing consumer sentiment (despite all the market and political trauma experienced during Q2), which suggests that German domestic demand can continue to support expansion during H2 and beyond (supported by vibrant capital goods investment on the back of strong profits expansion - see chart).
 
Unlike with US data, in Germany/Europe there are not timely official data on inventories, and the change in inventory series in the national accounts includes residual items (and is prone to substantial revisions, as happened for Germany's Q1 data). Therefore, we cannot draw too many conclusions about the inventory perspective from today's data, though other approaches (eg, based on surveys and on new orders) would suggest that most of the positive stimulus that might be expected from an end to destocking is probably over.
 
 
 source: BarCap