Germany: Return to Modest GDP Growth in Q1

Consensus Forecasts

In the wake of recent indicators signifying that the German economic recovery hung in the balance, the preliminary estimate of Q1 GDP (released on May 15) showed a 0.1% (q-o-q) rebound in activity following a 0.7% fall in Q4 2012. Elsewhere, industrial production doubled from a gain of 0.6% in February to 1.2% (m-o-m) in March. Manufacturing orders beat expectations in March by climbing 2.2% (m-o-m), due largely to an unexpected jump in Euro zone demand. In addition, March saw exports and imports rebound by 0.5% (m-o-m) and 0.8%, respectively, despite recession in the Euro zone and a slowdown in China (which has become an important destination for German exports). However, the GDP outlook has faltered this month and business confidence fell for a second straight month in April as the IFO index slid to 104.4, down from 106.7 in March. While the unemployment rate held steady at 6.9% last month, the protracted winter saw the number of people out of work climb by 4,000. The weakening labour market has fuelled concerns over private consumption fundamentals. Indeed, retail sales contracted by 0.5% (m-o-m) in March, following a downwardly-revised 0.6% fall in February. Our panel has left its 2013 consumption forecast largely unchanged this month.

The ECB reduced its refinancing rate earlier this month to a record-low 0.5% as a slowdown in regional inflation afforded policymakers some room to attempt to kick-start activity. Depressed commodity and package holiday prices saw German consumer price rises cool from 1.4% (y-o-y) in March to 1.2% in April, its lowest y-o-y level since December 2010. The consensus forecast for 2013 inflation has been reduced this month.

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