Tuesday, May 27, 2008

German GDP Q1 2008 Detailed Results

As already reported here following the first release of data from the Federal Statistics Office on 15 May 2008, the German economy started 2008 with what seemed on the surface to be considerable momentum since on a price, seasonal and calendar adjustmented basis gross domestic product (GDP) was up by 1.5% higher in the first quarter of 2008 over the level achieved in the last three months of 2007.

Economic growth in the first quarter of 2008 was supported primarily by gross fixed capital formation, which continued to increase at a fair clip. Compared with the fourth quarter of 2007, investment in machinery and equipment was up by 4%, and capital formation in construction rose by even 4.5% owing to the comparatively mild winter. Overall final consumption expenditure, increased by 0.5%, the first such rise in over a year, however breaking this down we find that government final consumption expenditure was up markedly (+1.3%), while the final consumption expenditure of households showed a smaller increase (+0.3%) against. Inventory building, on the other hand, added a substantial 0.7% points to growth in the first quarter. Exports continued to grow (+2.4%) but in fact since imports rose even more strongly (+3.5%), foreign trade actually had a downward effect on gross domestic product in Q1 2008 when compared with the preceding quarter (see chart below).

So the bottom line is that the of the 1.5% increase in q-o-q GDP, nearly half (0.7% points) was accounted for by a growth in inventories, while 0.4% was accounted for by a growth in construction which was in part the result of better weather in January and February and scheduled work being advanced (although you can't simply add these numbers since some of the construction work may well have accumulated in inventories), while the net impact of external trade slowed, and household consumption only accounted for 0.2% points.

So basically it would be far from in order to announce this result as strong evidence for anything about the Germany economy at this point, other than that the economy resisted a strong slowdown in Q1. The data from Q2 should make all of this much clearer, I think, we will see what gets to happen to the inventories, and we will see what happens to construction.

Year on year a slight increase (+0.1%) was recorded for the final consumption expenditure of households following a decline in the four preceding quarters (see chart below). According to the statistics office this slight improvement is primarily due to a recovery in private car purchases (follwoing the VAT impact in Q1 2007), since expenditure on transport and communications, which includes also private car purchases, rose by an annual price-adjusted 2.2%.

In the first quarter of 2008, GDP was a price-adjusted 1.8% higher than in the same quarter one year earlier. The growth rate was a calendar-adjusted 2.6% as there had been two working days less in the reference quarter than in the first three months of 2007.

Q1 2008 gross domestic product was achieved by about 39.8 million persons in employment - 686 000 persons or 1.8% more than one year earlier. The number of unemployed (ILO definition) amounted to just under 3.5 million, having a share in the entire economically active population of 8.0%.

Overall labour productivity (price-adjusted gross domestic product per person in employment) rose only very slightly by 0.1% (another bad sign), although as measured per hour worked, there was an increase by 0.8% since the number of hours worked by those in employment rose much less than the number of persons in employment. This is a reflection of how Germany has been creating a lot of part time and temporary work in recent quarters.

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