Germany’s Q3 GDP to shrink 0.2%, but consumer confidence holds firm – research groups

LONDON (ICIS)–Germany’s GDP is set to keep falling in the current third quarter, but consumer confidence in Europe’s largest economy still seems to defy the ongoing recession fears, research groups said on Wednesday.

Economic research group DIW Berlin institute said in its latest forecast on Wednesday that Germany’s GDP will likely shrink 0.2% in Q3, from Q2.

Following the 0.1% Q2 GDP decline, Europe’s largest economy would thus slip into a technical recession, the group said.

Germany’s industrial economy was in crisis, and this was “slowly but surely” impacting the services sectors, DIW chief economist Claus Michelsen said.

DIW pointed, above all, to lower export demand amid the ongoing US-China trade conflict, fears of a hard, no-deal Brexit, and the political uncertainties in Italy.

All this was “poison” for Germany’s economy, which relies very much on exports of capital goods, DIW said.

However, domestic demand drivers were still “robust”, it said.

While the increases in employment have slowed, the labour market had not yet weakened, DIW said.

Consumers would be more cautious in their spending, but overall private consumption was likely to keep increasing, the institute said.

Meanwhile, demand in building and construction remained strong, it added.

CONSUMER CONFIDENCE STILL STEADY
Market research group GfK reported on Wednesday that consumer confidence in Germany was still holding steady, despite the recession fears.

GfK’s forward-looking consumer sentiment indicator for Germany came in at 9.7 points in the group’s August survey, unchanged from the July survey.

While the propensity to buy increased, income expectations dropped slightly from July.

However, consumers’ economic outlook “suffered a significant decline” in the latest survey, GfK said.

Trade conflicts with the US and the threat of tariffs on German exports, as well as ongoing Brexit negotiations and the prospect of a no-deal Brexit mean that consumers are seeing an increased risk of recession in Germany, GfK said.

Initially this would primarily affect the export-driven sectors as well as the suppliers to these industries, but over time this could spread to other areas of the economy as well, it said.

“The global economic downturn, trade wars and the ongoing discussions surrounding Brexit are all putting increasing pressure on the economic outlook of consumers”, it added.

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