Germany shrugs off Brexit fears and trade threats to grow 0.5% in second quarter

The German economy, Europe’s largest, appears to have shrugged off Brexit fears and trade war threats to grow by 0.5 per cent in the second quarter of this year.

After growth of 0.4 per cent in the first quarter compared to the end of 2017, analysts said the economy was “alive and kicking”, with a robust performance driven by both stronger consumer spending and state investment.

"The strong economy and strong consumption are profiting from a good labour market," said UniCredit chief economist Andreas Rees, in a nod to a post-unification jobless rate low of just 3.5 per cent.

DekaBank chief economist Andreas Scheuerle said it was comforting that Europe's economy was holding steady and shifting from years of export-driven growth towards more balanced growth also spurred on by domestic demand.

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However, he said the good news today couldn’t mask the looming risks tomorrow. “Even if the effects of trade conflicts and sanctions are not yet palpable in the German export figures, they are already burdening the economy,” he said, pointing to slower company investment despite full order books. “In the long term this could come back to haunt them.”

That cautious outlook was reflected in the ZEW economic sentiment indicator, which came in at -13.7 – well below its long-term average of 23.

"The recent agreement in the trade dispute between the EU and the United States has led to a considerable rise in expectations for Germany and also, to a lesser degree, for the euro zone," said Achim Wambach, ZEW president. However, he warned that unresolved trade concerns and the Turkey currency crisis could change things quickly. "The economic outlook for Germany is now significantly less favourable than it was six months ago."

On edge

Senior German politicians remain on edge with the US and its renewed sanctions against Iran.

"This trade war is slowing down and destroying economic growth – and it creates new uncertainties," said Peter Altmaier, federal economics minister. "We won't let Washington dictate to us with whom we can do business."

Separate statistical data showed Germany’s consumer inflation, harmonised to make it comparable with other euro zone data, remained at 2.1 per cent on the year in July.

This is the third consecutive month that German headline inflation topped the European Central Bank’s price stability target of close to but just below 2 per cent for the whole bloc.