German GDP in line with expectations as construction picks up

The Eurozone's powerhouse economy gained 0.3 per cent in the third quarter, in line with expectations but marking a slowdown from the second quarter's 0.7 per cent growth. Year-on-year, third quarter growth was unchanged at 0.9 per cent.

Berenberg's Christian Schulz comments that "a strong surge in investment was the key driver of Germany’s Q3 expansion." Construction investment growth accelerated to 2.4 per cent quarter-on-quarter (it was 1.9 per cent in the second quarter) and machinery and equipment investment increased by 0.5 per cent. This comes as euro uncertainty fades and funding conditions are "extremely favourable thanks to the ECB’s accommodative monetary stance", says Schulz. "The investment surge was much stronger than we and consensus had expected and bodes well for an investment-led expansion next year as well."

Weaker expansion in private consumption (0.1 per cent quarter-on-quarter) and a moderate rise in government spending (up 0.5 per cent), along with higher inventories, contributed to the overall GDP growth, adds Schulz. "All the conditions for a further and accelerated expansion of domestic demand are in place, with low unemployment, rising wages, low inflation, low interest rates and low uncertainty."

Germany's potential "to continue to play positive role in supporting the Eurozone crisis countries’ export-led recovery" was highlighted by the expansion in domestic demand (imports rose by 0.8 per cent quarter-on-quarter), which more than offset the negative contribution of 0.4 per cent from net exports.