Exports boost German GDP in Q2 but Brexit clouds loom large, some economists say

A sharp rebound in exports kept the German economy´s expansion on track during the second quarter of 2016.

Detailed data from the Federal Statistics Office confirmed that sales of goods and services abroad were the main driver of growth in the euro area´s largest economy over the three months to June.

Gross domestic product growth of 0.4% quarter-on-quarter was also confirmed.

Net foreign demand, exports minus imports as it were, jumped 1.3% quarter-on-quarter, offsetting a 0.2% fall in household consumption and - above all- large declines in investment within construction and manufacturing.

Imports slipped 0.1% over the quarter, contributing to a positive 0.6 percentage point contribution from net trade.

Economists at Pantheon Macroeconomics emphasised that the quarter-on-quarter volatility - albeit dramatic on the surface - in the different components of aggregate demand was in fact "not unsual".

Non-residential construction investment shrank by 5.2% quarter-on-quarter and investment in machinery and equipment by 2.4%.

"Survey data point to a rebound in Q3," said Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics.

Government spending also helped to prop up demand, clocking in with an expansion of 0.6% versus the first three months of the year.

"Despite an acceleration in exports, risks to the sector from a slowdown in China and the UK remain. In 2015, Germany’s bilateral current account balance with the UK amounted to EUR56bn or 1.8% of German nominal GDP. Moreover, the UK’s share of Germany’s total external surplus increased markedly over time.

"These data suggest that if the UK’s demand for German investment goods was to slow down materially due to uncertainty stemming from the Brexit vote, German real activity could be affected significantly," Olga Tschekassin and Tomasz Wieladek at Barclays Research said in a research note snet to clients.

Barclay´s forecast was for German GDP to grow at a 0.3% quarter-on-quarter clip in the second quarter.

"As the refugee influx of 2015 should continue to prop up government spending and Germany saw the biggest pension increase in more than 20 years, effective in July, the German outperformance against its eurozone peers is likely to continue, although the absolute pace of growth is expected to slow.

"[...] While survey indicators have generally held up well in recent months, ultimately we expect weaker demand from the UK and the fading of the boost to consumption from low energy prices to have an impact," chipped in Matthias Thiel at BNP Paribas.