Gross Domestic Product in Europe’s largest economy, Germany, grew by 1.7% quarter-on-quarter in adjusted terms from July to September this year, according to data released by the Federal Statistics Office on Thursday, November 25, 2021.

German household spending was the sole driver of the weaker-than-expected economic expansion in the third quarter, more than offsetting a drop in company investments and state consumption over the summer months.

A 6.2% jump in consumer spending in the three months from July to September from the previous three-month period contributed 3 percentage points to the overall growth rate in the third quarter.

“This is due to catch-up effects in the service sector. Restaurants, bars and the hotel industry in particular benefited”.
VP Bank Group Analyst, Thomas Gitzel

But Gitzel added that persistent supply bottlenecks in manufacturing were holding back overall growth, which could be seen in weaker investment activity by companies in machinery and buildings in the third quarter.

Slump in government spending

German state spending also fell on the quarter, further pushing down the headline GDP figure. A jump in new coronavirus infections over the past weeks is now threatening to kick away Germany’s last remaining pillar of growth in the final quarter of 2021.

“The consequences of the pandemic are causing a kind of stop-and-go growth”.
Gitzel

Separately, a survey by the GfK institute showed that the surge in coronavirus infections and unusually high inflation rates are weighing on German consumer morale, dampening business prospects for the upcoming Christmas shopping season.

The recent growth fell short of a flash estimate of 1.8% published last month and also marked a slowdown in German growth from a revised expansion of 2% in Q2 2021, thus, between April and June. The economy shrank by 1.9% on the quarter in the first three months of the year (Q1 2021).

Growth forecast for 2021

In October 2021, the German government cut its economic growth forecast for this year to 2.6%, but lifted its estimate for next year to 4.1% as supply problems were delaying the recovery in the country. In April, the government forecast its economy to grow by 3.5% in 2021 and by 3.6% in 2022.

For 2023, the government now expects economic growth to normalize with an expansion rate of 1.6%. The scarcity of semiconductors and other intermediate goods, caused by supply chain disruptions because of the COVID-19 pandemic and a rise in demand for chips in an increasingly digitalized world, is holding back German manufacturing output.

In addition to the supply problems with electronic components, companies are also struggling to meet high demand because of raw material shortages.

The widespread bottlenecks in production, coupled with unusually high demand, are leading to price increases and this is why the German government expects consumer price inflation to surge to 2.9% this year.

But the government is sticking to its assessment that the price surge will be temporary, and sees inflation easing to 2.2% in 2022 and to 1.7% in 2023. Germany’s consumer price inflation was 0.6% in 2020. Germany Germany Germany