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German Businesses Uncertain About Future
World Economy

German Businesses Uncertain About Future

The German economy continued to grow at a moderate pace in the third quarter, according to data from Statistisches Bundesamt Destatis. Markit’s PMI data signaled further modest growth at the start of the fourth quarter, but results from the latest Business Outlook Survey highlight growing uncertainty among businesses about prospects for the year ahead. ETF investors have also trimmed their exposure to Germany in a sign of reduced confidence in the corporate outlook.
Moderate economic growth was maintained in Germany in the third quarter, with gross domestic product rising 0.3%. This was consistent with signals sent by the purchasing managers index and in line with the Thomson Reuters consensus. Growth slowed slightly from the 0.4% seen in the previous quarter, though on an annual basis the German economy grew by 1.7%, up slightly from 1.6% in Q2, Seeking Alpha reported.
According to Destatis, positive contributions to overall GDP came mainly from the domestic market, as both household and government final consumption expenditure increased during the latest three-month period. PMI survey data had already indicated that retailers enjoyed their best calendar quarter since 2006 in the three months to September, as good weather made consumers more willing to loosen their purse strings. Moreover, the combination of low energy prices and rising wages lead to higher real incomes, which in turn enabled households to increase their consumption, according the latest monthly report from the Deutsche Bundesbank.
Negative contributions meanwhile came from a slight decrease in gross fixed capital formation and the development of foreign trade, with imports rising stronger than exports.

 Uncertain Outlook
The Markit Germany Composite PMI (which measures the combined output of manufacturers and service providers) signaled further economic growth at the start of the fourth quarter, with the pace of expansion similar to that signaled for the three months to September. While output growth slowed slightly in the manufacturing sector, service providers reported a sharper rise in activity. The survey data furthermore highlighted that the labor market remained in good shape, with the rate of job creation close to a four-year high.
However, despite the PMI survey data suggesting that manufacturing growth was maintained in October, the data also highlight that production growth could slow in coming months. The orders to inventories ratio fell to an 11-month low, suggesting that a future rise in demand could be satisfied by using existing stock, rather than scaling up production levels.
Some gloominess was also evident in the latest Markit Business Outlook Survey, which showed business optimism in Germany falling in October. Companies were less upbeat about their prospects for activity, new business and employment, with panelists highlighting uncertainty stemming from geopolitical tensions, the growth slowdown in China and volatile raw material prices.

 

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