Since investment activity hinges to a large extent on business expectations, we are only likely to see a gradual pickup in investment over the rest of the year. Investment activity remains the soft spot of the German domestic economy.
The good news is that industrial capacity utilization rose by more than one percentage point in July (on a three-month comparison). The strong rise in industrial production raises hopes that the German economy will see substantial growth in the third quarter of this year as well. We are penciling in sequential growth rates in gross domestic product of at least 0.5% in both the second and third quarters. Of course, the weather-related handicaps earlier this year, including the aftermath of the floods, are currently resulting in additional production and will doubtless continue to do so in the months ahead.
Over the rest of the year the boost from exports is likely to increase – for one thing because the weakness of the Chinese economy is likely to prove short-lived, for another because signs of a pickup in the eurozone are growing. The German economy is likely to enjoy moderate, but broad-based growth.