Strong German domestic demand despite adverse global economic conditions

Germany's GDP growth decelerated slightly to 0.3%QoQ in Q3 2015 from 0.4%QoQ in Q2 on the back of a sharp drag from net trade (- 0.4pps after +0.8pps in Q2) due to emerging markets' economic slowdown and a decline in gross fixed capital formation that subtracted 0.1pps from real GDP growth. On the flipside, private and government consumption growth accelerated to 0.6%QoQ from 0.1%QoQ and to 1.3%QoQ from 0.7%QoQ in the prior quarter, respectively, with final consumption expenditure constituting the main pillar of growth.  

High frequency business surveys point to stronger growth in Q4. In more detail, Germany's Ifo Business survey came in better than expected in November (to 109.0 vs. consensus expectations of 108.2 from 108.2 in October), with broad-based improvement for both current conditions and business expectations. Moreover, German composite PMI rose by 0.7 points to 54.9 in November, boosted by a buoyant increase in the services sector (+1.2 points to 55.6), which hit a 14-month high of 55.6 and more than offset a slight decline in the manufacturing sector.  

The GDP forecast stands at 1.7% for 2016 from 1.6% for 2015, with domestic demand remaining the main growth driver. Household spending should benefit from stronger labor market conditions and higher wages, while the fiscal stimulus as regards the refugee influx will likely boost final consumption and construction activity.