German domestic demand back on track in Q3

In Q3, German GDP grew by 0.32% qoq, according to the preliminary release, which compared with 0.44% in Q2 and was lower than the 0.36% forecast. This week's release will provide the first breakdown of growth, which should confirm that domestic demand is back as the key driver of growth, after net exports were the dominant driver in Q2. 

Private and government consumption is expected to have increased by 0.4% and 0.3% qoq, respectively, while net exports should have made a negative contribution. According to the qualitative information in the flash release, investment is likely to have been the main reason for the weaker-than expected GDP growth. Contrary to the expectation of a rebound, investment appears to have declined slightly. 

Looking to Q4, while further headwinds are expected to trade and investment stemming from the weaker global outlook, consumption should remain buoyant, in line with the strong labour market and increased fiscal spending in relation to the high refugee inflows.