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German economy beats expectations with 0.1% growth in Q2

Christian Fernsby |
According to most recent calculations, the gross domestic product (GDP) rose by 0.1% in the 2nd quarter of 2022 on the 1st quarter of 2022 after adjustment for price, seasonal and calendar variations and thus returned to the pre-crisis level of the 4th quarter of 2019.

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The Federal Statistical Office (Destatis) reports that the development was more positive than reported in the first release of 29 July 2022.

“Despite difficult framework conditions in the global economy, the German economy held its ground in the first two quarters of 2022,” said Dr. Georg Thiel, President of the Federal Statistical Office. In the 1st quarter of 2022, the German economy had grown by 0.8%.

The economy was supported mainly by household and government final consumption expenditure. Despite large price increases and the energy crisis, consumers took the opportunity to travel and go out more, for example, in the 2nd quarter of 2022 after nearly all Covid-19 restrictions had been lifted.

Household final consumption expenditure rose by a total of 0.8% compared with the 1st quarter (price, seasonally and calendar adjusted). General government raised its final consumption expenditure by 2.3%.

While gross fixed capital formation in machinery and equipment also increased on the previous quarter (+1.1%) after adjustment for price, seasonal and calendar variations, gross fixed capital formation in construction showed a marked decline (-3.4%) after the unusually good and mild winter.

As a whole, trade with foreign countries went up.

Enterprises reported altogether stable exports although the volume of goods exported to Russia was down considerably in the 2nd quarter of 2022 compared with the beginning of the year due to the war in Ukraine.

Despite the interruptions in supply chains worldwide, exports of goods and services were up by 0.3% from the 1st quarter of 2022, after price, seasonal and calendar adjustment. However, there was a larger quarter-on-quarter increase in imports (+1.6%).

In the 2nd quarter of 2022, the price, seasonally and calendar adjusted gross value added decreased by a total of 0.3% on the 1st quarter of 2022. Diverging trends were recorded for the individual economic sectors.

The economic performance in manufacturing declined by 0.5%, with the dampening effect being due mainly to energy intensive branches such as the chemicals industry and manufacturers of basic metals. In contrast, the lifting of the Covid-19 restrictions led to a better economic performance in most service branches.

Exceptions to this were trade, transport, accommodation and food services (‑1.5%), where the result was however attributable only to the decline in trade, and public services, education, health (-0.8%).

Gross value added in construction dropped markedly by 2.4% in the 2nd quarter of 2022 compared with a quarter earlier, after price, seasonal and calendar adjustment.

GDP in the 2nd quarter of 2022 was up a price adjusted 1.8% compared with the 2nd quarter of 2021. After adjustment for price and calendar effects, GDP growth in the 2nd quarter of 2022 was 1.7% year on year.

Domestic demand increased considerably also year on year despite large price increases and global insecurity.

This applies especially to household final consumption expenditure, which rose by a price adjusted 7.2% from the 2nd quarter of 2021. When almost all Covid-19 restrictions were lifted at the end of March, people were again keen to travel. Expenditure on accommodation, restaurant and transport services increased strongly in the 2nd quarter of 2022.

Households also spent more money on semi-durables such as clothing and footwear. Less was spent on durable goods; this may have been due to more serious delivery problems, especially with regard to cars, and large price increases.

The high food prices and higher household expenditure on food and beverage services have probably led to lower price adjusted household expenditure on food compared with the 2nd quarter of 2021.

Government final consumption expenditure rose by 1.9% from the 2nd quarter of 2021, which was mostly due to higher spending on social benefits in kind. One reason was that care costs continued to be high and health insurance costs went up, which was due to unusually large case numbers of infectious diseases, among others.

Trends diverged for fixed capital formation. Capital formation in machinery and equipment increased slightly by a price adjusted 0.6% on a year earlier despite rising prices and fewer commercial new registrations of passenger cars.

Gross fixed capital formation in construction, in contrast, saw a 3.9% decline on the 2nd quarter of 2021 because of high construction prices, delivery bottlenecks and skilled labour shortage.

Foreign trade increased on a year earlier. Total exports rose by 1.9% in the 2nd quarter of 2022 year on year. Imports increased by a price adjusted 7.2% in the same period. Here the trade in goods was much less dynamic than the trade in services.

The recovery of tourism was one of the reasons for the considerable rise in imports and exports of services in the 2nd quarter of 2022.

Overall, the price adjusted gross value added in the 2nd quarter of 2022 was up 2.0% on the 2nd quarter of 2021.

The lifting of almost all Covid-19 restrictions at the end of March 2022 led to an improved economic performance in nearly all service branches in the 2nd quarter of 2022. Gross value added increased particularly strongly for other services, which include creative industries, sports, entertainment and recreation, among others.

Trade, transport, accommodation and food services as a whole also recorded a large increase of 5.9%, which was however owing to the two-digit increases in accommodation and food services and transport, whereas trade declined strongly.

Economic performance was also down notably in construction (-3.9%), which was caused by the particularly large price increases in that sector. Manufacturing, in contrast, saw only a slight year-on-year decrease of 0.6%.

The economic performance in the second quarter of 2022 was achieved by roughly 45.5 million persons in employment whose place of employment was in Germany. This was an increase of 664,000, or 1.5%, from a year earlier and more than before the Covid-19 crisis.

The average number of hours worked per person in employment was 0.5% lower than in the second quarter of 2021, which was mainly due to higher rates of sickness absence and holiday leave.

As a result, the labour volume of the overall economy, which is the total number of hours worked by all persons in employment, increased by just 1.0%. This is shown by first provisional calculations of the Institute for Employment Research (IAB) of the Federal Employment Agency.

Overall labour productivity (price adjusted GDP per hour worked by persons in employment) rose by 0.7% from the same quarter of the previous year, according to provisional calculations. Labour productivity per person in employment was 0.3% higher than in the second quarter of 2021.

At current prices, the GDP rose by 7.8% and the gross national income by 7.2% in the second quarter of 2022 compared with a year earlier. Net national income at factor costs was up by just 3.1% on the second quarter of 2021.

According to first provisional calculations, the compensation of employees increased by 5.6% year on year, while property and entrepreneurial income decreased by 3.0%. The compensation of employees showed a similar increase (+5.1%) in the second quarter of 2021, while property and entrepreneurial income surged by 39.9% in that quarter, compared with the second quarter of 2020.

Gross wages and salaries of employees in the second quarter of 2022 were 6.1% higher than in the second quarter of 2021, net wages and salaries were up by 5.9%. When calculated as an average per employee, the increase in wages and salaries was slightly less marked (+4.3% in gross terms, +4.1% in net terms).

The disposable income of households was 6.4% higher than a year earlier.

Household final consumption expenditure at current prices rose by 14.3% on the same quarter of the previous year. Households had consumed less and saved more than usual in 2020 and 2021, the two years heavily affected by the Covid-19 pandemic.

Due to the lifting of nearly all restrictions and the sharp price rises in the second quarter of 2022, nominal consumption expenditure increased sharply and the savings ratio was back to the pre-crisis level. The savings ratio was 10.1% (following 16.5% in the second quarter of 2021), according to provisional calculations.

In the other large European Union (EU) Member States, economic growth was stronger than in Germany in the second quarter of 2022.

Compared with the first quarter of 2022, the price, seasonally and calendar adjusted GDP rose by 1.1% in Spain, 1.0% in Italy and 0.5% in France. Economic growth in some smaller countries was similar to that seen in Germany (+0.1) or even lower.

Based on provisional calculations, the Statistical Office of the European Union (Eurostat) reported a GDP rise of 0.6% on the previous quarter for the EU as a whole. Economic performance in the United States (USA) was down by 0.2%, which was in contrast to the development in Germany and the EU in the second quarter of 2022.

The GDP growth rates of most other EU Member States were higher than in Germany in a year-on-year comparison.

Compared with the fourth quarter of 2019, the quarter preceding the Covid-19 pandemic, German GDP was back to its pre-crisis level (0.0%) for the first time in the second quarter of 2022.

In contrast, economic performance in Spain (‑2.5%) remained significantly below the level of the fourth quarter of 2019, while the EU as a whole (+2.0%), France (+1.0%) and Italy (+1.0%) exceeded their pre-crisis levels. Despite the slight decline, the United States recorded even higher growth (+2.5%) compared with the pre-crisis level.


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