World Economy

German Expectations Dip

German Expectations Dip
German Expectations Dip

Financial analysts grew more pessimistic about Germany's economic outlook in May, a sign that the strong economic performance at the start of the year may not continue.

Germany's ZEW think tank said Tuesday that its measure of economic expectations fell to 6.4 points in May from 11.2 points in April, well below its long-term average of 24.4 points. Economists polled by The Wall Street Journal had forecast an increase to 12.3 points. The measure of current economic conditions, meanwhile, rose to 53.1 points from 47.7 points, Dow Jones reported.

Europe's largest economy in the first quarter fared better than many analysts had forecast, said Achim Wambach, the ZEW's new president. "But they do not seem to expect the economic situation to improve at the same pace going forward," he said.

The Federal Statistical Office earlier on Tuesday confirmed that Germany's gross domestic product grew at a quarterly rate of 0.7% in the first three months of the year, which translated into an annualized rate of 2.7%. That was more than double the rate of 0.3% recorded in the fourth quarter of 2015.

While the ZEW survey reflects the assessment of financial analysts, economic forecasters often prefer to look at business surveys—such as the purchasing managers index and the Ifo survey—to gauge the underlying strength of an economy.

Germany's Ifo business climate index, due Wednesday, is expected to rise to 106.8 in May from 106.6 in April, below levels of around 109 seen at the end of last year.

Investors Spooked

Investor confidence fell unexpectedly in May as uncertainty over a possible exit by Britain from the European Union overshadowed strong growth data.

While official data earlier showed that Europe's biggest economy grew by 0.7% in the first three months, investor confidence took a surprise tumble.

"Uncertainties regarding developments such as a possible 'Brexit' currently inhibit a more optimistic outlook," Wambach said.

Britain goes to the polls on June 23 to decide whether to remain in the European Union.

Earlier, the federal statistics office Destatis said that first-quarter growth was driven primarily by rising consumer spending and increased investment.

Investment expanded by 2.3%, with construction investment up on account of the mild weather.

Domestic Demand

Domestic demand was the main driver of economic progress, particularly in net additions in capital stock including machinery equipment and buildings, which rose by 1.9% in comparison with the final quarter of 2015.

Gross additions of capital stock increased in the construction industry by 2.3%, with this year’s relatively mild winter as one of the main reasons why.

Final consumption expenditure of households rose by 0.4% and government final consumption expenditure increased by 0.5% on the previous quarter.

Exports also increased, as goods and services that travelled rose by 1% quarter on quarter.

The amount of imports grew at a faster pace of 1.4%, leaving the balance of payments having a negative net effect on growth by an estimated minus 0.1%.

Year on year, there was also a rise in GDP, climbing by 1.6% from the first quarter of 2015.

Although the pace of growth slightly eased from the year on year, figures for the last quarter of last year rose by 2.1%.

There was also a quarterly increase of 533,000 in employment figures, overall labor productivity, which is calculated as price-adjusted gross domestic product per hour, was up 1.1% on the previous year.

On the production side of GDP, price-adjusted gross value added, or measure of the amount of goods and services produced at the beginning of 2016, was higher than a year earlier in all economic sectors, overall by 1%.

The highest growth rates were found in financial and insurance activities, which rose by 2.5%, and for information and communication services by 2.3%.