Germany continues to shine in Q1, but structural factors to weigh on the outlook

Continuing the impressive performance over the winter, Societe Generale revises up German growth in Q1 to 0.7% qoq (from 0.5%), the same as in Q414. Household consumption is expected to remain robust, rising 0.8% qoq in Q1, with investment also following through. 

Net exports are expected to leave a small negative contribution. Recently, there has been some weakening in investor and business expectations surveys (from high levels), but it does not change the outlook for robust labour market conditions and wage growth, and a strong domestic performance with lagging manufacturing and export activity. 

The easy monetary and financial conditions and the weak euro add to these patterns and would eventually hint at some fiscal policy tightening in case wage and inflationary pressures build. However, medium-term growth is likely to be held back by the poor demographic outlook and structural rigidities in the energy and services sectors.