German GDP growth accelerates in Q2 2018, to continue to expand at similar pace in H2 2018

The German national accounts for second quarter were released today, affirming the GDP growth of 0.5 percent on a sequential basis and 2.3 percent year-on-year. This was an acceleration from the first quarter’s data. However, the details of release implied that underlying momentum in the economy might be slightly less vigorous than suggested by the headline figures.

For instance, German private consumption growth was just 0.3 percent sequentially, a deceleration from 0.5 percent growth seen in the first quarter, albeit a rebound from the rates seen in the second half of 2017.

“But while the ECB will be encouraged to see a further pick up in employee compensation to 4.7 percent Y/Y, the second highest rate on the series, and healthy nominal household disposable income growth of 3.2 percent Y/Y, on an adjusted basis the savings ratio continued to rise reaching 10.2 percent, the highest since Q110” noted Daiwa Capital Market Research in a report.

Meanwhile, investment growth came in at 0.5 percent sequentially in the second quarter after recording a strong 1.4 percent growth at the beginning of the year. Contribution from inventories underlined the weak tone of the release: this category contributed a large 0.4 percentage points to the headline rate.

Export growth came in at 0.7 percent in the second quarter. The build in stocks might well have been involuntary, which would possibly be a drag on production ahead. Domestic demand might give extra support to GDP in the quarters ahead, especially as strong income growth might raise private consumption growth.

“And, overall, we expect German GDP in the second half of the year to continue growing at a broadly similar rate to Q1 and Q2”, added Daiwa Capital Market Research.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Euro was bullish at 91.9272, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -42.3192. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex