Eco Week
Economic Pulse

Last stand in the 3rd quarter 

11/13/2022
Germany quaterly changes

Against all odds, German GDP grew by 0.3% in the 3rd quarter (q/q). This is very surprising because the Minister for the Economy, Robert Habeck, announced on 12 October that "the German economy should contract in the third and fourth quarters of this year as well as in the first quarter of 2023”. Although the detail of the GDP components is not yet available, the national institute of statistics (Destatis) points out that private consumption would have driven growth in the 3rd quarter. But this is difficult to reconcile with the 3.5% fall in retail sales (including sales of vehicles) between Q2 and Q3 2022 and that of 2.6% in wholesale trade. It would seem that it was consumption of services which increased strongly with the end of the catch-up effects in the accommodation/catering sector, which seem to have come fully into play in relation to the 16.8% q/q increase in turnover in the sector.

But we shouldn't be misled. This positive surprise does not call into question the difficult situation in which the German economy finds itself. Very high energy prices continue to undermine industry. Production in pharmaceuticals and chemicals was 8.3% lower in October than in January 2022. A similar fall can be seen in the wood and paper industry (-7.9%). Steel and metal manufacturers fared a little better, with the drop in their production limited to 2.6% since the beginning of the year, even though their business is energy intensive. Finally, the production in automotive sector has improved in recent months as a result of the improvement in supply side (particularly semiconductors), but it still remains at a very low level and new car registrations in October were 23.3% lower than in October 2019.

Supply is not the only aspect that is suffering. On the demand side, new orders in industry are falling. Since the start of 2022 they have fallen by 12.3% and the drop is particularly significant for foreign demand outside the Eurozone (-20.5%). However, it is partly in this market segment that Germany has based its growth over the past decade.

As for the business surveys, all are pointing in the direction of a marked deterioration in activity in the 4th quarter, which is clearly visible on our barometer. Household confidence remains at very low levels. The composite PMI declined for the eighth month in a row and the 6-monthly business outlook as seen by business leaders surveyed by the IFO is not recovering. After the surprise of GDP growth in the third quarter, it is difficult to imagine the German economy continuing to grow over the last three months of the year.

THE EXPERT ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

Editorial
Disinflation has started

Disinflation has started

The US consumer price data for October have reinforced the view that disinflation -the narrowing of the gap between observed inflation and the central bank’s inflation target- has started [...]

Read the article
Economic Pulse
Another negative surprise on inflation and a pleasant one on growth 

Another negative surprise on inflation and a pleasant one on growth 

Harmonised inflation in the Eurozone surprised again unfavourably in October, reaching 10.7% year-on-year according to Eurostat’s preliminary estimate, compared to the Bloomberg consensus forecast of 10.2% [...]

Read the article
Economic Pulse
A positive surprise in 3rd quarter growth, which makes a downturn in Q4 more likely

A positive surprise in 3rd quarter growth, which makes a downturn in Q4 more likely

The French economy saw GDP rise by 0.2% q/q in the 3rd quarter, a performance which indicates a high level of activity, following on from the previous positive growth figure in the 2nd quarter (+0.5%) [...]

Read the article
Economic Pulse
Encouraging news on the inflation front 

Encouraging news on the inflation front 

Inflation in Spain fell in October for the third consecutive month, from 10.7% in July to 7.3% in year-on-year terms [...]

Read the article