Economic Insight: Resilient European economy

  • Political uncertainties in Europe are currently considerable. Even if the attempt by populist parties to form a government in Italy has failed for the time being, a great amount of political uncertainties remain.

  • Nevertheless, the overall conditions for a continuation of the upswing in the euro zone are mostly positive. In our opinion, the first quarter of the year saw only a temporary stutter in the economy.

  • The German economy got off to a weak start in 2018, with growth halving to 0.3% in the first quarter of this year compared with the end of 2017 (+0.6%). Within the euro zone, 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 zone was up by 2.5%.

  • However, the domestic economic conditions for a continuation of the upswing in Germany remain very good. The earnings situation of the companies is positive and the financing conditions are exceptionally favorable. Corporate and household debt is relatively low and high capacity utilization is boosting investment demand. Rising employment creates additional income and the real purchasing power of disposable income is growing despite higher oil prices. We therefore expect domestic demand to pick up again 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 real GDP growth of 2.1% this year and 1.9% next year, the rate of last year (+2.2%) will not quite be reached.