Germany: Upswing remains robust

The German economy got off to a weak start in 2018, with growth halving to +0.3% in Q1 compared to Q4 2017 (+0.6%). Within the euro area, the German economy is now growing at below-average rates. Germany's real GDP in the first quarter of 2018 was only +2.3% higher than the corresponding prior-year level, but that of the euro area by +2.5%. However, the domestic economic conditions for a continuation of the upswing in Germany remain very good. The earnings situation of companies is positive and financing conditions are exceptionally favorable. Corporate and household debt is relatively low and high capacity utilization is supporting investment demand. Rising employment creates additional income and the real purchasing power of disposable incomes is growing despite higher oil prices. We therefore expect domestic demand to pick up again as early as in the second quarter of this year. All in all, despite increased risks, we expect overall economic utilization in Germany to continue to increase in 2018 and 2019. However, with a working-day adjusted real GDP growth of +2.2% this year and +1.9% next year, the rate of 2017 (+2.5%) will not quite be reached.