German’s flash Q1 GDP number was a big disappointment, rising by a mere 0.3% qoq (median 0.5%, SG 0.6%). However, the qualitative information released confirms the forecast of strong domestic demand driving growth. While household consumption is likely to have been somewhat weaker than our initial forecast of 0.6% qoq, investment, in particular machinery & investment, appears to have been stronger (now 1% quarterly growth is expect , with construction investment also remaining strong), expects Societe Generale. In all, this provides for the expected contribution to growth from domestic demand. In contrast, imports appear to have been much higher than expected, partly due to strong investment, implying a stronger than expected negative contribution from net exports. Very positive for the coming quarters is the fact that the not-so-strong private consumption in Q1 implies a significant rise in the saving rate, while also inventories did not contribute materially to growth. GDP growth should be above potential this year, boosted by the very positive outlook for real disposable income and thus household spending, says Societe Generale. The key risk remains from external demand, which if it continues to disappoint may affect business confidence negatively for longer.
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