Germany: Modest Consumption Drives Growth as Exports Falter

A rebound in consumer spending in Q1 offset declines in investment and exports as GDP managed modest 0.1% (q-o-q) growth over the quarter. The breakdown of the national accounts reported a 0.8% (q-o-q) jump in private consumption, but this came alongside a 0.6% contraction in machinery and equipment investment. Eroding Euro zone demand was reflected in a 1.8% (q-o-q) drop in total exports, although imports also fell, by 2.1%, leaving net trade to make a slight positive contribution to GDP. Elsewhere, a surge in construction output saw April industrial production expand at its fastest rate in over a year, increasing by 1.8% (m-o-m). The manufacturing sector, though, continues to struggle in the face of external headwinds, and new car registrations slumped by 9.9% (y-o-y) in May. However, a rise in output and lower input costs helped the PMI for manufacturing climb to 49.4 in May, within striking distance of the 50-level threshold. While above-inflation wage growth and a relatively resilient labour market are likely lifting consumer confidence to a five-year high, hopes of a consumption-driven recovery were dampened as April retail sales unexpectedly contracted for a third consecutive month, by 0.4% (m-o-m). Still, the IFO index rose to 105.7 in May from 104.4 in April as business sentiment improved for the first time since February. With the Euro zone recession hampering German exports, though, our panel has downgraded its 2013 GDP forecast to 0.5% this month.

Inflation rose to 1.5% (y-o-y) in May, from 1.2% in April, due largely to renewed price pressures from household energy and motor fuel costs.

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