Following +0.4% in Q4 2013, Q1 GDP growth was up an outstanding 0.8% q/q, the fastest rate since Q1 2011, and up 2.3% y/y. The German statistical office has not released the expenditure Q1 breakdown yet (due on May 23) but has already indicated that domestic demand made positive contribution to GDP growth while the extremely mild weather partly explains this strong performance.
Conversely net trade had a downward effect on economic growth, as exports were down in Q1 while imports were markedly up, according to Destatis.
In addition, Destatis stated that household and government consumption increased over the quarter, following -0.1% q/q and 0.0% respectively in Q4. Finally gross fixed capital formation increased markedly when compared with the fourth quarter of 2013 (+1.4%q/q). This is good news as private capital investment is thus up for the fourth quarter in a row following six consecutive quarters of decline. In addition, corporates were still optimistic in April, according to the IFO survey despite the crisis in Ukraine. They should thus be willing to continue investing over the next months.
Finally the change in inventories had a marked upward effect on GDP growth, according to Destatis. This was expected as inventories cut GDP growth by 0.6pp in Q4 2013 and we had expected that corporate would need to rebuild them in the following months as demand accelerates.
Overall, prospects are unlikely to be as rosy in the coming months. Industrial orders which fully feed through to production with a three months lag declined 2.8% m/m in March, the sharpest contraction since October 2011. In addition China’s economic slowdown and the Ukrainian crisis could hamper the recovery as of Q2 although there is nothing alarming about the situation so far. But a more equilibrated domestic oriented recovery will help Germany better cope with a deceleration in its main exporting markets.
By Caroline NEWHOUSE