German consumers, state spending drive Q2 economic recovery
Tue Aug 24 2021
Nikki Bailey (1117 articles)

German consumers, state spending drive Q2 economic recovery

The German economy grew more than expected in the second quarter as the easing of COVID-19 curbs spurred consumers to dip into record savings piled up during the winter lockdown and the state pressed on with a huge debt-financed stimulus push.

Gross domestic product grew an adjusted 1.6% on the quarter, the Federal Statistic Office said on Tuesday, up from its previous estimate of 1.5% and following a revised first quarter contraction of 2%.

On the year, Europe’s largest economy expanded by a calendar-adjusted 9.4% in the second quarter, leaving economic activity 3.3% below the pre-crisis levels of the fourth quarter of 2019.

Private consumption grew by 3.2% between April and June, contributing 1.6% percentage points to overall growth and pushing the savings rate down to 16.3%. In the first quarter, when shops, bars and restaurants were closed under Germany’s lockdown, that rate hit a record high of 22%.

Public consumption expanded 1.8%, contributing 0.4% to the overall growth rate.

State spending to cushion the impact of the coronavirus crisis, financed with unprecedented new borrowing, blew a 80.9 billion euro ($95 billion) hole in the public finances in the first half of the year, the statistics office said.

This equated to a public sector deficit of 4.7% of GDP, the largest in 26 years and what Carsten Brzeski from ING Bank termed “the downside of the rapid economic recovery.”

The stimlus should help lift the economy back to pre-crisis levels before the end of 2021 but will leave the government that emerges from next month’s federal election with a heavy burden to shoulder, Brzeski said.

Germany’s quarter-on-quarter GDP growth compared with a second quarter euro zone average of 2% and growth of 0.9%, 2.7% and 2.8% respectively the bloc’s next biggest economies, France, Italy and Spain.

Nikki Bailey

Nikki Bailey

Nikki Bailey reports on US Stocks. She covers also economy and related aspects. She has been tracking US Stock markets for several years now. She is based in New York