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Domestic demand drives German growth in Q3

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Domestic demand drives German growth in Q3

The German economy expanded 0.3 percent in the third quarter and at an annualized rate of 1.1 percent, according to official government data. The gains were driven exclusively by domestic demand, with capital investment rising 1.6 percent.

“The investment surge was much stronger than we and consensus had expected and bodes well for an investment-led expansion next year as well,” said Christian Schulz of Berenberg.

Domestic demand added 0.7 percentage points to gross domestic product, while net trade eliminated 0.4 percentage points. The German export market expanded marginally (0.1 percent), while imports rose 0.8 percent.

Gross domestic product expanded at a much slower rate than the previous quarter, due largely to a slowdown in the export market. Germany’s largest export destination, the euro area, barely registered growth in the third quarter. The 17-nation currency bloc is facing sustained growth headwinds, with its second and third largest economies continuing to struggle. Economic activity in France and Italy contracted in the third quarter, with the latter entering its third year of recession. Italy’s GDP contracted at an annualized rate of 1.9 percent in the third quarter, according to official estimates.

The euro area “still faces a hard slog in developing the recovery and remains vulnerable to setbacks,” said Howard Archer of London-based IHS Global Insight. The currency region’s hope lines in the “combination of recent steadily rising confidence, ultra accommodative monetary policy, very low inflation and reduced fiscal tightening,” Archer added.

While growth slowed in the third quarter, the German Bundesbank believes Europe’s largest economy is on a solid path toward recovery. This sentiment was shared by the private sector, according to the monthly Ifo Business Climate Index. Firms are more optimistic about the German economy, raising their outlook of the current situation and future expectations. November’s Business Climate Index rose 1.9 percentage points to 109.3.

The Ifo survey captures the business outlook of 7,000 executives in manufacturing, construction, wholesaling and retailing.

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