The DAX Rises Following Strong German GDP
European stock markets pared losses and the DAX moved into the black while peripheral markets are outperforming after a very strong round of PMI readings and robust German GDP numbers, which underpinned confidence in the Eurozone recovery and helped to offset the impact of a strong EUR. The FTSE 100 underperformed throughout the morning, but also managed to climb up from earlier lows and and is only marginally in the red. U.S. markets are closed for a holiday, but U.S. futures are also higher, indicating that investor sentiment has shrugged off the slump in Chinese equity and bond markets that dominated Asia trading.
Ifo Institute lifts German growth forecast to 2.3% this year from 1.9% expected previously. The institute also said that 2018 GDP growth is likely to be a “few tenths” more than the 2% expected so far. Today’s second reading for Q3 GDP confirmed the very strong 0.8% quarter over quarter growth number and showed still robust investment and a boost from net exports and with the labor market continuing to look strong and wage growth picking up consumption should also recover from the slight contraction in the third quarter, so we agree with the Ifo that the growth outlook is looking even stronger than previously expected and the ECB’s decision to extent QE once again looks even more out of synch with the economic reality.
German GDP Confirmed at Higher Levels
German Q3 GDP was confirmed at 0.8% quarter over quarter, in line with the preliminary number and up from 0.6% quarter over quarter in the previous quarter. The annual rate rose to 2.8% year over year and the breakdown, which was released for the first time, confirmed that net exports were a driving factor. Private consumption contracted over the summer, government consumption was flat and while investment improved, the expansion was notably weaker than in the previous quarter as construction investment contracted.
So more like the growth profile we used to see from Germany in the early stages of a recovery rather than the consumption led recovery we have experienced so far in this upturn. There were sizeable backward revisions to equipment investment, which has turned out to have been much stronger than anticipated in the year to date and that at least is good news also for growth ahead. German growth is already running above potential and investment will be key to maintaining momentum going ahead. Public investment, though is also urgently needed and with only a caretaker government in place, urgently needed decisions are being once again postponed.
This article was originally posted on FX Empire
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