German Growth Deconstructed

May 27, 2008

Details of the 1.5% first-quarter jump in German real GDP (6.3% saar) were released today. With that spurt, on-year growth over the past eight quarters has averaged 2.9%. 2006 had been a stronger year than 2007, with faster growth in all four quarters than in the corresponding quarter of 2007. But that trend toward less rapid growth was dramatically interrupted in 1Q08. Growth in 1Q07 had been +0.6%, even with the benefit of more working days than in 1Q08. Adjusted for that discrepancy, real GDP had climbed 2.6% in the year to 1Q08.

Breaking down the 1.5% q/q growth in 1Q, investment accounted for 0.7 percentage points. Inventory building did likewise. Personal consumption and government spending chipped in 0.2 percentage points each, but net exports exerted a drag on growth. In the year to 1Q08 not adjusting for the fewer working days than in 1Q07, personal consumptions firmed 0.1%, government spending went up 1.2%, business investment advanced 2.6%, and exports (5.9%) outpaced imports (4.0%).

Growth in 1Q respresents an unsustainable spike at best and the last hurrah at worst. Some of the inventory build was unwanted. A 4.5% non-annualized leap in construction was abetted by unseasonably mild winter weather. Germany’s PMI in services dropped sharply in May, and other data like lower consumer confidence reported today corroborate increasingly difficult times. The euro and commodity prices are bearing down on growth. So is an abrupt slowdown in Britain. The ECB refuses to cut interest rates with inflation still cresting.



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