Germany: Growth Cools, Though Recovery Hopes Remain Intact

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The preliminary estimate of Q3 GDP (released after our survey deadline) showed growth easing to 0.3% (q-o-q) from 0.7% in Q2. Activity was hampered by another lacklustre showing by business investment and a weaker labour market. Job creation has failed to keep pace with labour supply over the past two years, and the number of people out of work climbed by 2,000 for a third successive month in October. However, the unemployment rate held steady at 6.9%, near its record-low, and our panel predicts it will average just 6.8% in 2014. Elsewhere, industrial production unexpectedly dropped by 0.9% (m-o-m) in September although the recent trend remains supported by upward momentum in manufacturing and construction. Factory orders jumped by 3.3% (m-o-m) in September as Euro zone car sales grew at their fastest pace in two years (though admittedly from an exceptionally low base), fuelling expectations that the German recovery could regain traction before the end of 2013. Despite the US government shutdown last month and recent political uncertainty in Italy, German firms’ export expectations rose in October, according to the forward-looking IFO index, but the overall index fell to 107.4 from 107.7 in September, underscoring the fragility of the recovery and the very cautious approach of firms in the face of an unsupportive regional environment.

A slowdown in energy prices saw inflation fall to 1.2% (y-o-y) in October, from 1.4% in September. The ECB responded to deflation fears by cutting its refinancing rate to a record-low 0.25% on November 7, significantly weakening the euro and giving German exporters another reason for optimism.

 

You can download a sample of Consensus Forecasts G-7 and Western Europe at www.consensuseconomics.com.

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