German Economy Shrinks

Data released by the Statistisches Bundesamt Deutschland this morning indicated that the size of the German economy shrank over the course of the second quarter. On a quarter-on-quarter basis, Europe’s largest economy contracted 0.1%, meeting market expectations and coming in line with preliminary results. This morning’s contractionary print comes alongside a fall in consumer confidence, indicative of how the German economy continues to face headwinds, notwithstanding how it keeps narrowly avoiding a recession.

Over the second quarter of the year, capital investment sunk 2.2% as private consumption also decreased 0.2%. Helping to provide some support was Government Consumption which grew 1%. This came as exports fell 0.2%.

The print marks a departure from Q1 where the German economy expanded 0.2%, having shrunk 0.4% over the course of Q4 2023.

The latest GDP fugues provide further indication that economic momentum is faltering across Germany, amid monetary conditions, a fall in global demand and an uncertain political environment. Such concerns over growth follow last week’s PMIs which saw the composite figure fall to 48.5 against the consensus of 49.2. Following the release, the Chief Economist at Hamburg Commercial Bank said that “These numbers are a real mess. The recession in Germany’s manufacturing sector deepened in August, with no recovery in sight”.

The figures come in contrast to France (which expanded 0.3% on a quarterly basis), Italy (which expanded 0.2%) and Spain (which expanded 0.8%), alongside the average of the twenty-member state Eurozone which grew 0.6% over Q2, marking the highest print in five quarters.

The British Retail Consortium’s shop price index has indicated that prices have fallen for their first time in almost three years. This comes as prices fell at 0.3% on annualised basis for the month of August, marking a significant departure from last month’s print where prices rose 0.2% in the year to July.

The fall in the index comes as a number of retailers offered discounts on goods, with such discounts offsetting the rise in food prices.

According to the CEO of the BRC, the print was “driven by non-food deflation, with retailers discounting heavily to shift their summer stock, particularly for fashion and household goods”.

Yesterday afternoon, US Durable Goods Orders well surpassed expectations, surging at its highest rate since May 2020. Against a consensus which was pointing to a 4% print, orders rose 9% over the course of July. The print signalled a rebound to June’s figure which showed Durable Goods Orders contracting 6.9% (its most significant fall since January).

The figures offer some rebuttal to recent concerns that the health of the US economy – particularly its manufacturing sector – is slowing amid monetary conditions being held persistently high.

A 4.8% rise in transport equipment orders fed into the overall positive print, as did orders for metal products and defence aircraft and parts which rose 0.2% and 12.9%, respectively.