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ING: German economy overcomes stagnation with GDP growth

Published 24/05/2024, 16:08
© Reuters.

Investing.com - The German economy is showing signs of a gradual turnaround. GDP growth in the first quarter indicates a shift in the economic cycle, but analysts like Carsten Brzeski, Global Head of Macro at ING Bank, caution against excessive optimism due to ongoing challenges.

Brzeski noted that the second estimate of GDP for the first quarter confirms overcoming stagnation, driven by a recovery from the contraction in the previous quarter, as well as construction activity and net exports. He explained, "The return to growth was aided by the downward revision of GDP for the fourth quarter and a recovery in construction activity and net exports."

Data released by the Federal Statistical Office showed GDP growth of 0.2% compared to the previous quarter, after the fourth quarter was revised down to -0.5%. Adjusted for the number of working days, however, the economy remained 0.2% below the level of the same period last year.

While construction activity increased by 2.7% compared to the previous quarter, both private and public consumption fell by 0.4% quarter-on-quarter. Brzeski attributed the revival in the construction industry to favorable weather conditions but warned against excessive optimism: "The growth in the first quarter brings some relief, but it is not a reason for excessive joy."

Despite the positive indicators, Brzeski pointed to structural weaknesses in the German economy that could slow the pace of recovery. "There are still several cyclical factors that could affect economic activity," he said, including higher oil prices due to ongoing conflicts and risks in the labor market.

Looking ahead, Brzeski expects the German economy to gain momentum, driven by wage growth and a gradual improvement in the inventory cycle. However, he emphasized that challenges persist and forecasted modest growth of about 0.3% for this year.

Overall, while the German economy shows signs of a turnaround, analysts warn against excessive euphoria and point to ongoing problems and structural weaknesses that could hinder a rapid recovery.

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