Euro Macro: German economy grew sluggishly in the second half of last year – Germany’s Statistisches Bundesamt published GDP data for 2019 as a whole on Wednesday. The volume of GDP expanded by 0.6%, following 1.5% in 2018. Assuming that the quarterly growth rates during the first three quarters of 2019 will not be revised, the average growth rate of 0.6% in 2019 suggests that growth in 2019Q4 was close to 0.1%, the same as in Q3. The details of the report show that growth was driven by private consumption (contribution to growth: 0.8pps), government consumption (0.5pps) and investment in the construction sector (0.4pps). Investment in machinery and equipment was stagnant in 2019, whereas inventory building (-0.9pps) and net exports (-0.4pps) each reduced growth significantly. The national account data also reveal that employment growth slowed to 0.9% in 2019, down from 1.3% in 2018, while wages and salaries (per employee) increased by 3.2%, the same as in 2018. Household disposable income increased by 2.8%, down from 3.5% in 2018, whereas property and entrepreneurial income fell by 2.9% in 2019, following a decline by 0.5% in 2018.
Looking ahead at 2020, we expect quarterly growth to remain subdued in Q1 and Q2 (at around 0.2% qoq), but pick up thereafter, rising to 0.4%-0.5% in the second half of the year. The slowdown in employment growth and the drop in entrepreneurial income in 2019 are expected to limit private consumption growth and investment in machinery and equipment this year. On the other hand exports are expected to accelerate on the back of a recovery in global trade, while government spending should also gather strength on the back of budgetary expansion. Indeed, the national accounts showed that the government has much more room for fiscal expansion than it is in fact using, with the budget balance having ended up at +1.5% of GDP in 2019, which is higher than the latest estimate by the European Commission of 1.2%. Overall, we expect Germany’s annual GDP growth in 2020 to be close to the level of 2019, though quarterly growth rates will likely be better than last year. (Aline Schuiling)