German Q2 GDP beats forecasts, despite Brexit
Growth in the euro area´s largest economy during the second quarter clocked in faster-than-expected, as consumption by both the private and state sectors put in strong performances and exports turned up, while investment cooled off after an extended run, but the data left economists divided on the outlook .
German gross domestic product expanded at a 0.4% quarter-on-quarter pace over the three months ending in June, according to the Federal Statistics Office.
No detailed breakdown of expenditures was yet available.
Economists had forecast German GDP would grow 0.2% over the quarter.
Friday´s data opened up the possibility of an upside surprise in German growth in 2016, Brexit notwithstanding, Dr. Andreas Rees, chief German economist at UniCredit Research said in a research note sent to clients.
The country´s economy might be growing at about 1.8% to 1.9% at present, marking an acceleration in comparison to the previous two years, he said.
Interestingly, he took aim at any possible quip that Germany might be 'underspending' - or exporting at other countries' expense - saying it was just a temporary "blip".
"In the last 10 quarters, net exports were negative and weighed on headline growth seven times," he pointed out.
Economists differ: How much will Brexit weigh on domestic capital expenditures and the economy?
As for cooling investment in machinery and equipment, the decline took place after six consecutive quartelry increases and growthof 8.5% since the backhalf of 2014. Hence, a breather was in order, he explained.
More important, the fundamental drivers for domestic investment and the capital goods sector remained intact, he said.
"Even after Brexit, German companies remained pretty cool. The Ifo index in July declined somewhat but the feared shock effect was largely missing. All this evidence points towards an outlier but does not signal a new fundamental downward trend. We expect further rises in domestic capex spending going forward," he said.
A slowdown in construction investment was thought to be payback for the torrid pace seen in the first quarter, courtesy of mild weather.
Dr. Rees forecast German GDP would expand at quarter-on-quarter rates of 0.3% and 0.4%, respectively, in the third and fourth quarters of 2016.
Matthias Thiel at BNP Paribas was more cautious, telling clients: "Despite some resilience in recent data, we continue to believe Brexit will ultimately weigh on GDP growth over the coming quarters. We expect quarterly growth to weaken compared to H1 and to hover around 0.2%-0.3% q/q in the second half of the year."
Olga Tschekassin and Tomasz Wieladek at Barclays Research were nearer to the view held by BNP Paribas.
"We believe the economy will slow only slightly but grow broadly at the same pace in Q3 before the impact of the Brexit vote starts to show in the data toward the end of the year. With our growth forecast now at 0.3% and 0.2% q/q in Q3 and Q4, respectively, this brings our annual GDP growth to 1.5% y/y in 2016 and 1.1% y/y next year," they said.