In the second quarter, Germany experienced a significant contraction in its economic growth.
In the initial three-month period spanning April till June, there was a substantial decrease in investments in equipment and construction, as per the data: Investments in machinery, equipment, and vehicles dipped by 4.1%, and investments in construction declined by 2.0%.
There wasn't any positive push from foreign trade, as the data center further noted: Exports of goods and services decreased marginally by 0.2% during the second quarter, while imports remained stationary.
Private consumption dropped by 0.2%, having started the year on a growth trajectory by 0.3%. Conversely, government consumption expenditures saw a significant increase by 1.0%, maintaining overall consumption expenditures stable.
As of now, German consumers are being frugal with their money, according to market research firms GfK and Nuremberg Institute for Market Decisions, who reported a significant decline in consumer sentiment in August. "The enthusiasm triggered by Germany's football European Championship seems to have been just a brief spark," they stated.
As per a survey by the Ifo Institute, the export sector isn't powering the economy's growth at the moment: The sector's sentiment continued to deteriorate in August. "Exporters aren't currently reaping the benefits of economic growth in other European countries," Klaas Wohlrabe, head of Ifo surveys, explained.
Germany's economic progress is lagging behind numerous international states, the data office expounded. For instance, the EU's overall GDP grew by 0.3%, while Spain and France saw growths of 0.8% and 0.3% respectively. The USA experienced a growth of 0.7% compared to the previous quarter.
The economy commenced the summer quarter from July to September "without much drive," as the chief economist of KfW development bank, Fritzi Köhler-Geib, mentioned. However, she is hopeful for a minor economic growth in the third quarter.
ING analyst Carsten Brzeski remains optimistic about the second half of the year. The highest real wage increase in over a decade could "encourage consumers to loosen their purse strings," he said. Additionally, inventory levels are high: "A mere slight improvement in industrial order books could reverse the inventory cycle and prompt a revival in industrial production growth."
Köhler-Geib anticipates a gradual recovery of the German economy in the forthcoming quarters; the annual growth for next year is expected to be substantially positive. She also highlighted the increased purchasing power of household income and a potential stabilization of business investments.
Real wages increased by 3.8% compared to the preceding quarter in the first quarter, and by 5.3% for net average earnings in the second quarter, per statistics. This is primarily due to higher wage agreements due to inflation and the issuance of tax-free inflation compensation premiums.
Despite the decrease in investments in equipment and construction, contributing to a potential drop in Germany's gross domestic product, the export sector isn't currently driving the economy's growth as expected. Consequently, Germany's economic progress is trailing behind several international states.
