According to the preliminary estimate of Q2 GDP (released after our survey deadline), growth accelerated to 0.7% (q-o-q) from 0.1% in Q1. While a detailed breakdown of the national accounts is not released until August 23, latest indicators suggest a broad-based recovery in recent months. The outlook for German industry is brightening due to a slight upturn in Euro zone activity, while a strengthening labour market bolsters private consumption. Industrial production rebounded by a robust 2.4% (m-o-m) in June, resulting in a 2.8% (q-o-q) jump for Q2 as a whole, the fastest pace of expansion for three years. Furthermore, factory orders surged 3.8% (m-o-m) in June while July saw the PMI for manufacturing return to growth for the first time since February. Business confidence increased for a third consecutive month in July as the IFO index edged up to 106.2, from 105.9 in June, adding to the picture of an improving economy. The number of people out of work declined by 7,000 in July as, in stark contrast with other Euro area trading partners, the German job market continued to strengthen. Low unemployment alongside above-inflation wage rises looks set to spur consumer spending going forward, and although retail sales unexpectedly fell by 1.5% (m-o-m) in June, many observers have dismissed this as a blip. The CPI quickened to 1.9% (y-o-y) in July from 1.8% in June.
A recent IMF report criticised German policymakers for their steadfast support of austerity measures for indebted Euro area economies. The report stated that further harsh consolidation could jeopardise any recovery and also warned that Germany must slash its sizeable trade surplus in order to rectify the Euro zone’s North-South imbalances.
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