German Q2 GDP Likely To Show Country On Verge Of Recession
Life will likely get even more difficult for German Chancellor Olaf Scholz as the country heads toward recession.

- Q/Q growth forecast at 0.1% (prev 0.2%)

- NSA Y/Y growth projected at 1.8% (prev 4.0%)

- Analysts warn that indicators point to slowdown

- Economists slash estimates for future business activity

- Russian gas shipment woes to hamper economy

- Data due Friday at 08:00 GMT (10:00 CET)

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

 

27 July 2021 | 16:30 GMT

 

FRANKFURT – Germany is expected to report marginal growth for the second quarter on Friday, but most observers are already looking past that period and into the future, where they see the growing likelihood of a recession in Europe’s largest economy.

 

The results are to come just an hour before the EU is scheduled to announce Eurozone second-quarter GDP results and preliminary July inflation data.

 

An economists’ poll says German GDP in the three months to June slipped to a quarterly – and barely palpable – rate of 0.1% versus to the 0.2% in the previous period. Non-seasonally adjusted annual growth last quarter is expected to have fallen to 1.8%.

 

“The latest hard macro data has confirmed our concern that the economy might already have contracted in the second quarter of the year,” said Carsten Brzeski, head of macroeconomics at ING. “Admittedly, this is only data up to May, but almost all of the data is down compared with the first quarter. If it weren't for still relatively strong business sentiment and a particularly solid current assessment, a contraction would have been the consensus view already.”

 

HSBC backed the consensus of Germany just eking out growth last quarter. “While Germany barely avoided a technical recession in Q1 on the back of a strong uptick in inventories, it still was heavily affected by economic headwinds from both the energy cost shock due to the war in Ukraine and continued global supply chain disruptions weighing particularly on the manufacturing sector. Given that things have – if anything – become even worse in Q2 in that respect the ongoing recovery in the service sector due to eased Covid-19 restrictions has likely been just enough to keep overall GDP growth positive.”

 

As Investec noted, in comparison to many of the other economies in Europe, “Germany looks to have been the laggard, recording a fall in GDP.”

 

It was the best of times...

The worst news is that the minimal economic activity in the first half could be the best the country experiences for quite a while. With the threat of at least diminished deliveries of Russian natural gas in the months ahead – or a complete end to shipments – the slashing of German GDP growth estimates is well underway, with the IMF weighing in last week.

 

“We expect economic growth to slow sharply to 1.2% in 2022 owing to elevated energy import prices and weak consumer confidence,” it said, thereby significantly paring its April estimate by 0.9 percentage points.

 

The outlook for next year is even worse, according to the IMF. “We expect supply bottlenecks to persist even into 2023. These bottlenecks, combined with the usual delayed pass through of wholesale to retail gas prices, drives down our expectations of growth to just 0.8% in 2023.” That projection is less than one-third of the IMF’s April estimate.

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