German economic recovery continues despite headwinds
Dr. Nils Jannsen, Head of German Economic Outlook at the Kiel Institute, comments on the latest figures released by the Federal Statistical Office, which show that GDP increased by 0.2 percent in the third quarter:
„The German economy continued to recover despite the adverse effects of the war in Iran and low water levels on the Rhine. A moderation in growth compared with previous quarters had already been expected. In the first half of the year, some German industries had a temporary competitive advantage, as competitors in other regions were more severely affected by supply and production disruptions caused by the war in Iran. However, this temporary boost is likely to have faded by now, making the adverse effects of higher commodity prices more pronounced. In addition, low water levels on the Rhine have hampered production.
The recovery is likely to continue in the coming quarters. Recent business surveys support this outlook. The improvement in export expectations suggests that German firms may once again benefit more strongly from robust global economic activity. The global AI boom is creating additional sales opportunities. Rising defense spending is also supporting production. However, the marked improvement in sentiment in manufacturing is so far only partly reflected in the hard data on production, sales, and new orders available through August.
Several factors are likely to constrain the pace of the recovery. Higher commodity prices will continue to weigh on households' purchasing power well into next year, particularly as some of the higher costs are passed on to consumers only with a lag. Moreover, fiscal policy is likely to provide considerably less additional stimulus in the coming years. Finally, persistent structural weaknesses in Germany's business environment continue to constrain economic expansion.“
