Germany's sputtering recovery

• Standstill. When the GDP numbers are published in mid-May, it should become apparent that the German economy stagnated in the last six months. Following the zero growth in the fourth quarter, real GDP should even have contracted slightly at the beginning of this year. In the process, the risks are still skewed to the downside (pages 4-7).

• Causes. The main drag on growth was the weather-related slump in construction output. But private consumption and net exports also played a role. Had it not been for the positive contribution from the inventory cycle, the GDP number would have been much deeper in the red.

• Question marks. Above all, the poor export numbers were a source of irritation. At the beginning of the year, real exports were probably down substantially qoq. Germany should in fact have profited structurally from the global economic recovery. Nor does the development of foreign trade gel with the upturn in German foreign industry sales.

• Spurt. That argues for a statistical reaction in spring. If the usual rapid recovery of construction output after a harsh winter is added to the equation (cf. chart), the current quarter should bring strong GDP growth of almost 1%. Thereafter, however, the pace of growth should normalize again and settle at 0.3%-0.4% qoq.

• Recovery. Evidence that – beyond the statistical distortions – the German and therefore also the EMU economy is still staging a (moderate) recovery is also provided by the improved monetary and fiscal environment. Our respective MCI & FCI indicators point clearly north (pages 8-9).

• Further topics:

  – Weekly Comment: Greece – third time lucky? (page 2).

  – Oil price continues to trend higher (page 10).

  – Data outlook: Consolidation of German business climate indicators; tax-related spurt in US home sales (page 12).

  – Market outlook: Investors not convinced by EU rescue plan (p. 17).