Decline in German GDP: Impacts on Trade, Industrial Sector, and Household Spending

In Q3, the German economy shrank by 0.1% compared to the previous quarter, as stated in the initial report. Nevertheless, the year-on-year numbers demonstrated further weakness.  

Highlights

• Finalized data reveals that the German economy shrank by 0.1% during the third quarter.
• Economic activity was hindered by decreased household spending, industrial sector output, and trade.
• On Friday, attention will be directed towards German business sentiment statistics and Christine Lagarde.  

German Economy Contracts by 0.1% in Q3 2023

Key attention was directed towards the German economy on Friday. The finalized German Q3 GDP figures became a focal point for investors.

- The German economy declined by 0.1% quarter-on-quarter in Q3, compared to 0.1% growth in Q2, aligning with initial data. Year-over-year, the economy contracted by 0.4%, revised from an initial 0.3% contraction.

- According to Destatis:

  - Household final consumption expenditure decreased by 0.3% quarter-on-quarter.
  - Government final consumption expenditure saw a 0.2% increase.
  - Foreign trade negatively impacted the economy, with exports of goods and services decreasing by 0.8% and imports declining by 1.3%.
  - The industry sector, excluding construction, declined by 1.3%, primarily attributed to a notable drop in the production of motor vehicles, trailers, and semi-trailers.
  - In contrast, the construction sector experienced a 0.4% growth.

Year-Over-Year Overview:

- High prices resulted in a 2.0% decline in household final consumption expenditure.
- Government final consumption expenditure contracted by 1.6%.
- Foreign trade witnessed a significant downturn, with exports of goods and services falling by 3.8% and imports plummeting by 5.7%.
- The industry sector, excluding construction, decreased by 3.8%.

Labor Market Conditions:

- Despite the economic contraction, employment showed a year-on-year increase.
- Total gross wages and salaries saw a 7.3% rise from the previous year.
- The savings ratio increased to 10.3% from 9.6% one year earlier.
- Notably, household disposable income grew by 4.7% compared to a 3.8% increase in household final consumption expenditure.

The EUR/USD Reaction to the German GDP Report:

- Ahead of the GDP Report, the EUR/USD dropped to a low of $1.08950 before reaching a high of $1.09119.
- Subsequently, in response to the GDP Report, the EUR/USD rose to a high of $1.09073 before declining to a low of $1.09034. This morning, the EUR/USD was up 0.02% at $1.09043.

German Business Sentiment and ECB President Lagarde:

- Later that morning, the German Ifo Business Climate Report and ECB President Lagarde were key points of interest for investors. A rise in business confidence would indicate an improving macroeconomic environment. However, ECB President Lagarde's position also warranted consideration.

US Private Sector PMIs in the Spotlight:

- Friday also saw investor interest in the US private sector PMIs for November. The Services PMI was expected to have a more significant impact, given its contribution of over 70% to the US economy. Investors were advised to consider subcomponents, such as prices, employment, and new orders, as the survey could influence market sentiment towards Fed interest rate objectives.