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News : EU Economy Last Updated: Aug 27, 2014 - 10:38 PM

German outlook for H2 2014 bleak according to Deutsche Bank
By Michael Hennigan, Finfacts founder and editor
Aug 8, 2014 - 9:35 AM

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German data this week has been mixed but Deutsche Bank began the week with a report Monday saying the economy stagnated in the second quarter and the outlook for the second half of the year is bleak. 

The German business cycle is losing its shine and economic growth likely suffered a worse setback in Q2 than initially presumed according to the economists. They added that the best second quarter performance would be stagnation but they could no longer rule out a minimal decline.

Global economic conditions do not point to dynamic growth in H2. In particular, the tougher sanctions on Russia and the risk of further escalation of the conflict are set to weigh on business sentiment and investment activity in spite of Russia's low share in German exports.

Russian exports, which account for up around 3.3% of total German exports, fell by 15% in the first five months of 2014 compared with the same period last year, according to Germany's Chamber of Industry and Commerce (DIHK).

As regards the key trading partners of Germany, Russia ranked eleventh in 2013 (see chart below) with the value of the goods traded amounting to €76.5bn. Germany exported goods to the value of €36.1bn to the country. The main export goods were machinery (23%) and motor vehicles, trailers and semi-trailers (21%).

Imports from the Russian Federation amounted to €40.4bn. Crude oil and natural gas accounted for 72% of the imports. Thus roughly 31% of the total German crude oil and natural gas imports came from Russia.

DB in its report says that the debate triggered by ECB and Bundesbank comments about higher wage increases in Germany is likely to have a similar impact to the Russian crisis, even though the substance of the statements is less spectacular, on closer inspection, than the media hype. "As uncertainties abound we have decided to refrain for now from making a downward revision to our full-year forecast of 1.8% GDP growth."

The economists say that a "major" revision of the national accounts will be carried out in September. Three changes will be particularly important in quantitative terms: the more precise definition of sectors, especially of the government sector, as well as the classification of military expenditure and expenditure on research and development as capital formation. Overall, the revision could mean that the level of GDP could be boosted by approximately 3%. "However, growth revisions will likely be limited as these are mostly level effects. A positive side-effect of the revision: per-capita GDP will rise by more than EUR 1,000 and the investment ratio by over 2%age points of GDP, while Germany's government debt ratio will fall by 2.5%age points."

DB says the outlook for the second half of the year is bleak.

Report [pdf]

However, the final Markit Germany Composite Output Index (PMI; purchasing managers' index surveys) - - which measure the combined output of the manufacturing and service sectors -- rose from 54.0 in June to 55.7, signalling accelerated growth in total private sector output. Private sector employment also rose at a slightly sharper rate, stretching the current spell of continuous job growth to nine months. The amount of new work received by German service sector companies increased since the previous month, but the rate of growth eased slightly and was the weakest since April.

Companies operating in the Post & Telecommunications sub-sector saw the steepest increase in new business. Higher demand meanwhile encouraged service providers to increase their workforce numbers in July. Employment levels have now risen for nine months in a row and the rate of job creation accelerated to the highest since February. Post & Telecommunications companies saw the sharpest rise in payroll numbers.

The Germany PMI is based on original survey data collected from a representative panel of 1,000 companies based in the German manufacturing and service sectors.

In June 2014, industrial production rose by 0.3% from the previous month on a price, seasonally and working day adjusted basis according to Destatis, the federal statistics office. In May 2014, it decreased a revised 1.7% from April 2014. Production in industry excluding energy and construction grew by 0.1%.

German factory orders dipped in June compared to the previous month due to a decrease of large orders.

Destatis said Wednesday that industrial orders were 3.2% lower than in May, when they also fell by 1.6%

Domestic orders dropped 1.9% and those from countries outside the Eurozone fell by 4.1%

New orders from other countries in the Eurozone declined by 10.4%.

German imports rose at their fastest rate in over three years in June, suggesting that domestic demand remains strong in Europe's biggest economy. Data Friday from Destatis showed that seasonally adjusted imports rose by 4.5% on the month, recovering from a decline in May. It was the strongest month-on-month rise since November 2010

Goods exports were valued at €93.4bn and imports s €77.0bn in June 2014 with exports rising by 1.1% and imports by 2.1% in June 2014 on June 2013. After seasonal adjustment, exports increased by 0.9%.

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