German economy expands slightly in first quarter of 2024

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Increases in foreign trade has also gone a long way in supporting this higher GDP figure. However, despite falling inflation, German consumers remain cautious when it comes to spending.

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The final estimate for Germany’s quarter-on-quarter gross domestic product (GDP) report for Q1 2024 came out on Friday morning. It revealed that GDP grew by 0.2%, according to the Federal Statistical Office. This was a surge from the previous quarter’s -0.5% and in line with analyst estimates.

This increase was mainly due to a jump in gross fixed capital formation, which rose to 1.2% in the first quarter of the year, from -2.1% in Q4 2023, primarily driven by advances in construction investment.

Year-on-year GDP came in at -0.2% in Q1 2024, which was the same as the previous quarter, as well as in line with market expectations.

Improving foreign trade also contributed significantly to this number, with exports growing 1.1% in Q1 2024, up from -0.9% in the previous quarter, and imports advancing 0.6%, a rise from the -1.6% seen in the last quarter.

German inflation came in at 2.2% in April 2024, which was the same number as March, and down from February’s 2.5%. This could be an encouraging sign for Europe’s biggest economy, as inflation is gradually coming back towards the European Central Bank (ECB)’s 2% target.

Ruth Brand, president of the Federal Statistical Office, said in a statement:  “The rate of inflation has been below three percent since the start of the year. Energy and food prices in particular, have had a dampening effect on the inflation rate since January 2024.

“However, core inflation- measured as the change in the consumer price index excluding food and energy- has been higher than overall inflation since the beginning of the year.”

Despite inflation inching down however, consumer spending has not quite picked up as expected, with private consumption and government spending both dropping 0.4%.

This is likely to be due to most consumers still being cautious about the lingering effects of higher interest rates and economic uncertainty, which have plagued Germany for several months.

Is the German economy finally looking up?

In recent months, the German economy has faced several challenges such a worsening property crisis, airline strikes and a lacklustre economy. However, this latest GDP report may signal a turning point. 

According to KPMG, “The German government’s assessment of the economic outlook for Germany is slightly better than at the beginning of the year. The forecast for economic growth this year was raised by 0.1% to 0.3% in the spring projection.

“Falling energy prices, lower inflation rates, monetary easing and a recovering global economy, from which the export-oriented German economy is benefiting, should ensure a recovery for both private households and industry. Private consumption in particular, which is driven by rising real wages and a stable labour market, is expected to provide important impetus for growth.

“Despite the positive signals, the structural problems remain. The German government must continue to work on strengthening Germany as a business location in order to achieve higher growth again in the medium and long term.”

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