Bundesbank, the German central bank released the monthly economic report. In the report, Germany’s central bank cautioned that growth in the third quarter could slow. The central bank forecast that growth would be driven by private consumption with contribution from the industrial side slowing.
The monthly report showed that third-quarter growth could end up being “somewhat slower” compared to the average pace of growth in the first half of the year. This is expected to come due to weaker factory orders. German automakers have been currently battling the new emissions testing cycle. Private consumption fueled by a strong labor market is expected to keep growth on track nevertheless.
Germany, Europe’s largest economy, gained momentum in the second quarter. Growth expanded faster than expected which was a relief for investors. Investors feared that the slowdown seen in the first quarter could extend into the second quarter. This came after the bloc registered a solid five-year growth.
The German economy advanced 0.5% on a quarterly basis in the second quarter compared to 0.4% that was registered in the first quarter. However, the underlying growth momentum was seen to be only marginally higher from the Bundesbank’s forecasts.
Growth was mostly driven by private consumption during the second quarter.
In its report, the central bank noted that “the German economy should remain on a solid growth path in the third quarter.” However, it expressed caution that the pace of expansion could be slightly lower than average from the first half of the year.
The economic expansion in the Eurozone is expected to be self-sustaining with employment in Germany at record highs. The European central bank was seen dialing back on its stimulus program. The bond purchases will end this December with interest rate hikes forecast around the second half of next year.
The European central bank had noted that with growth rising at a steady pace, the Eurozone’s economy did not need the economic stimulus.
The Bundesbank’s report also said that short-term manufacturing expectations had stabilized at the elevated levels. It said that the order books were healthy but expect a modest contribution to overall growth. Most of this is attributed to the automakers’ difficulty to adjust to the new emission standards. The central bank said that this would only be temporary.
The Bundesbank also mentioned the current trade conflicts as headwinds for the manufacturing sentiment which has been in a decline. It said that noting the different gauges of activity, countries were likely to be affected by the protectionist policies of the U.S.
The Bundesbank did not make any mention about the potential impact on the Germany economy amid the trade tensions. The U.S. administration had threated to impose tariffs on auto imports from Europe. Such a move would have a direct impact on the automakers from Germany.
The Bundesbank said that the global manufacturing sentiment was unlikely to have a decisive influence but that escalations of trade tariffs could have a significant impact to global recovery.
The central bank also forecast that the German economy could post a bigger trade surplus. It said that the debt could also narrow down close to the European Commission’s 60% of GDP level by 2019.
The Bundesbank’s report validates the report by the German institute, Ifo. The Ifo noted earlier in the week that Germany’s current account surplus would remain the largest despite the trade tensions. The U.S. President Donald Trump also criticized the strength of Germany’s exports with the IMF and the European Commission urging Germany to do more to lift domestic demand and increase imports.
The current account surplus which is a measure of the flow of goods and services including investments is expected to reach $299 billion by end of 2018.
