German economy unable to keep up with France

It is Eurozone GDP day again and the just released German GDP data shows that private consumption alone is not sufficient for the economy to keep up with fast growing economies like France.

Supply chain disruptions will delay the moment for the German economy to return to pre-pandemic levels as it is growing but not growing strongly enough.

The German economy grew by 1.8% quarter-on-quarter in Q3, according to a first estimate by the German statistical office. GDP growth for the second quarter was slightly revised upwards to 1.9% QoQ.

On the year, the economy grew by 2.5%. The GDP components will only be published at the end of November but according to available monthly data and the statistical agency’s press statement, growth was mainly driven by private consumption.

The latest growth experience brings back memories of 2018 and 2019 when a series of one off factors brought a fundamentally solid economy to its knees.

This time round, it is supply chain frictions that have undermined the growth of the German economy’s performance. While private consumption and services have still enjoy the full post-lockdown rebound, industrial production had another weak quarter.

Looking ahead, supply chain difficulties, higher energy prices and the resultant surge in inflation do not promise a lot for the short-term outlook. In fact, the German economy could come to a halt in the final quarter of the year, assuming that higher inflation and supply chain frictions not only distort industrial production but also start to dent private consumption.