Economic Insight: German growth outlook remains favorable

  • Within the euro area, the German economy is now growing at below-average rates. Germany's real gross domestic product in the first quarter of 2018 was only 2.3% higher than the corresponding prior-year level, but that of the euro area by 2.5%.

  • However, the domestic economic conditions for a continuation of the upswing remain very good. The earnings situation in the corporate sector is positive, financing conditions are exceptionally favourable, the debt of companies and households is relatively low, high capacity utilisation promotes investment demand, job creation generates additional income and real purchasing power of disposable incomes is growing despite higher oil prices. We therefore expect domestic demand to pick up again already in the second quarter of this year.

  • All in all, despite the increased risks, we expect overall economic utilization in Germany to continue to increase in 2018 and 2019. However, with a not-working-day adjusted real GDP growth of 2.1% this year and 1.9% next year, 2017´s growth rate of 2.2% will not quite be reached.

  • There are more downside risks to the growth outlook for Germany than there is upside potential. While we see upside potential primarily in the case of a better-than-expected performance of the US economy, downside risks exist far and foremost in the context of the ongoing trade conflict with the US, the inflation outlook and political imponderabilities in Europe.