Germany’s economy sees surprise Q1 recovery

Growth in the construction and auto industries helped the German economy make a stronger start to the year than had been expected, newly published data have revealed, but commentators warn it will not be enough to snap the economy out of its wider malaise.

Data published by the federal statistics agency showed there was a 2.1 percent rise in overall output in February, following the 1.3 percent rise in January, which was well ahead of the 0.3 percent that had been predicted by a poll of economists carried out by Reuters.

Unseasonably dry weather helped the construction sector grow by 7.9 percent, and an easing of pressure on energy prices led to a 5.7 percent growth in Germany’s vital carmaking industry, and a 4.6 percent rise in the chemicals sector.

However, with overall production still 4.9 percent lower than it was a year ago, and almost 8 percent down from its pre-pandemic levels, the wider outlook remains pessimistic.

Factors, including falling exports to China, contributed to overall German economic shrinkage of 0.3 percent last year, making Europe’s economic heart the most poorly performing of any major developed country.

Stagnation still possible

“The increase in production in February has increased the chances that the German economy will not shrink again in the first quarter,” Ralph Solveen, deputy head of economic research at Commerzbank, told the Financial Times. However, he added that “production is likely to stagnate at best” in the coming months.

Analysis of the latest figures on the website of Dutch financial services group ING said, “As much as today’s industrial data is a balm for the German economic soul, this is not yet the start of a significant recovery.”

It observed that expected interest rate cuts “anticipating the upcoming European Central Bank rate cuts, lower gas and electricity prices, and the resilience of the US economy should bring more relief to German industry over the coming months”.

Wider global issues and structural challenges posed by things such as the green transition “will not disappear overnight”, it said.