German economy loses momentum in Q1 2018

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The German economy loses momentum in Q1 2018, rising at a slower pace than initially forecast in the first three months of the year. Data from federal statistics agency, Destatis showed that the Eurozone’s largest economy grew at a pace of just 0.3% on a seasonally adjusted basis during the three months ending March 2017.

The pace of growth was seen to have halved since the GDP powered ahead at a stronger pace in the three months ending December 2017. Economists’ polled were expecting the German GDP to rise at a pace of 0.4% during the quarter. In the previous quarter, the German economy expanded at a pace of 0.6%.

On an annual basis, the German GDP was seen rising 2.3% for the quarter ending March. This was slightly below forecasts of a 2.4% increase. The statistics agency also confirmed that the full year GDP growth was confirmed at 2.2% in 2017 or about 2.5% on the year. This was the strongest pace of increase since 2011.

Data from Destatis showed that there were some positive impulses for the economy. First were seen increasing their investments in buildings and equipment while households had slightly increased consumer spending as well.

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The government outlays were seen falling slightly for the first time in nearly give years. Growth was seen slowing on the back of weaker imports and exports compared to the previous quarter.

The German economy picked up steam towards the end of last year and the weak first quarter growth hinted that the Eurozone GDP could also slow. This comes amid a potential trade war with the United States.

Despite the weaker pace of GDP growth, the data showed that it was the 15th consecutive quarter of expansion and one of the longest uninterrupted periods of growth.

Many analysts brushed aside the weak data and noted that it was due to transitory effects. However, there are a number of factors including the euro currency’s exchange rate as well. The euro currency had surged strongly in the past few quarters which some economists believe might have been one of the reasons for exports to slow.

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There were also a high number of strikes during the period and the harsh winter which were other factors attributed to the slower pace of growth. The German government commented that it expects growth to bounce back in the second quarter. The official forecasts are expected to show that the German GDP could advance 2.3% on average this year.

The German institute Ifo said that while the momentum had cooled, growth was still intact and that stronger growth could be witnessed in the coming months.

The Eurozone’s second revised estimates were also released last week. There were no changes as the Eurozone economy was seen to be rising at a pace of 0.4% during the first quarter.

This was a slower pace of GDP growth compared to the 0.7% increase that was seen in the fourth quarter of 2017. Other economic data released over the week included the German ZEW economic sentiment. The data showed that the economic sentiment was at 8.2, unchanged from the readings from the month before. The Eurozone ZEW economic sentiment was seen to rise slightly to 2.4 from 1.9 previously.

Despite the weakness, the data is unlikely to see the ECB respond with any policy changes. The next ECB meeting is scheduled for in June where a likely announcement on further plans about tapering may be announced.

Currently, the ECB signaled that it will maintain its QE purchases at a pace of 30 billion euro until the end of 2018. Some members have already starting signalling to the markets that interest rates might rise within six to nine months after the ECB’s QE program is ended.

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