Germany: Cyclical recovery is expected to further cool down - Rabobank
|In a recently published report, "The cyclical recovery that seems to have reached its peak in the first quarter of 2017 is expected to further cool down and converge to ‘steady state’ growth which hovers around 1.75%," Rabobank analysts said assessing the economic situation in Germany.
Key quotes
"Indeed, at the start of this year the outlook for GDP growth was 2.3% for 2018 but recently has been lowered by the German government to 1.8%; a significant revision of no less than 0.5% (YoY). Where net exports overall have contributed significantly to Germany’s GDP growth in 2017, a sharp decline in German exports suppressed GDP growth by 0.4% in Q2 (figure 2). Concerns over slowing global trade – regardless of whether or not this is driven by protectionism – and capacity issues (such as insufficient qualified labour) may have put a cap on growth."
"Looking at sentiment indicators we get a mixed picture. The historically strong correlation between the Ifo Business climate indicator and GDP growth has broken down since late 2016 where business sentiment seems to have been overly enthusiastic. The latest Ifo developments show all the characteristics of a so-called dead cat bounce. Given the historically strong correlation between GDP growth and the Ifo Business Climate indicator, one could argue that something has got to give. Since growth is about to cool down further we expect the Ifo Business Climate indicator to drop further in the final quarter of this year."
"Despite ever decreasing unemployment, which has resulted in a further tightening of the labour market, AfD has been able to increase their support during the cyclical highs in 2017 and to sustain that support until today. Perhaps one issue to mention here is that most of the recent wage gains have been ‘eaten away’ by higher inflation (real compensation per employee stood at 0.8% YoY in June). In any case, this doesn’t bode well if German economic growth were to fall or, even worse, if the economy were to enter a recession."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.