German Third Quarter GDP Preview: Improving sentiment will limit recession

FXStreet  |

Photo credit courtesy of iStockphoto.com/user:photsvit

  • GDP expected to show the second quarter of economic contraction.
  • Investor sentiment has rebounded limiting the impact of negative growth.
  • Economic data has improved in several important categories.

The German Statistical Bureau will release its preliminary estimate for third quarter gross domestic product at 19:00 GMT on Wednesday November 13th, 2:00 EST on November 14th. A revision to the figures will be issued on November 22nd.

Forecast

Gross domestic product (GDP) is expected to have contracted 0.1% in the third quarter as it did in the second. Annual GDP in the third quarter will rise 0.9% from 2018 after a flat second quarter.

German GDP: Is the worst already over?

Growth in Germany is forecast to have contracted for the second straight quarter bringing Europe’s largest economy into recession but a sharp rebound in investor sentiment suggests that the downturn will be short and shallow.

The heavily export dependent German economy has been hard hit by the drop in global trade from the US China trade dispute and by concerns over the British exit from the European Union.

Gross domestic product, the widest definition of national economic activity, is predicted to have declined 0.1% in their third quartet following the same drop in the second. Two consecutive quarters of negative economic growth is the traditional definition of a recession.

German GDP Q/Q

Click to enlarge

Germany has not had a recession since the financial crisis of a decade ago though it has come close twice with a negative quarter followed by a flat one (Q4 2013 -0.6%, Q1 2014 0.0%, Q3 2018 -0.2%, Q4 2018 0.0%).

ZEW Survey

The ZEW survey of financial experts which measures institutional investor attitudes saw a large increase in outlook in November. The economic sentiment measure recovered to -2.1 from October’s -22.8 and the August eight-year low of -44.1. Sentiment specifically about the eurozone economy jumped to -1 from -23.5 reported ZEW.

Zew Economic Sentiment

Click to enlarge

Improving German Statistics

Other economic data appears to confirm that the pending US China trade deal and an orderly Brexit have helped to reverse economic trends.

Exports rose 1.5% in September after declining 0.9% in August. Imports rose 1.3% in September following August’s 0.1% increase and July’s 2.4% drop, hinting that the German consumer may be ready to resume spending. Imports had fallen for four of the seven months back to March.

Exports

Click to enlarge

Factory orders also rose 1.3% in September following declines of 0.4% and 2.1% in August and July.

Factory Orders

Click to enlarge

US and Chinese officials have said a deal to reverse some of the tariffs imposed by both countries and settle a number of outstanding issues was in train. But US President Donald Trump cautioned recently that if the “phase one” deal was not signed tariffs could rise.

In Britain Prime Minister Boris Johnson’s Brexit deal appears to have a good chance of approval as his Conservatives lead in most polls for the December 12th election.

Conclusion

The German economy is the heart of the euro zone, weakeness translates quickly to the euro and interest rates. If Germany has already seen the worst of the slowdown then the outlook for the monetary union as a whole and the euro, especially with Italy and France performing better than expected, may be brighter than anticipated just two months ago.

DISCLOSURE: FXStreet Collaboration.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     
BA

     
WMT

     
DIS

     
GOOG

     
XOM

     
BRK.A

     
FB

     
JNJ

     
WFC

     
T

     
NFLX

     
TSLA

     
V

     
UNH

     
PG

     

World Economic Forum at Davos 2019 - Joseph Weinberg CEO PayCase, Chairman Shyft

Matt Bird sits down with Joseph Weinberg CEO PayCase, Chairman Shyft at the World Economic Forum at Davos 2019