Domestic Growth Drivers To Improve
BMI View: German domestic demand will recover from a poor Q413 in early 2014, despite weaker external demand from emerging markets. We maintain our above-consensus real GDP growth forecast of 1.9% for this year, but expect growth to slow to a tepid 1.5% by 2015.
After a soft patch in Q413, which saw German real GDP growth modestly undershoot our full-year estimate - at 0.4% compared to our 0.5% estimate - economic activity looks to be on a stronger footing in early 2014. The manufacturing sector is once again the catalyst, with the Markit/BME manufacturing purchasing managers' index (PMI) reading hitting a three-year high of 56.5 in January. However, while the survey suggests that the pickup is mainly thanks to external (particularly US and Asian) demand, a stronger outlook for manufacturing bodes well for both consumption and fixed investment in 2014, with the sector still employing around 18% of the workforce (one of the highest ratios out of all developed economies).
This supports our view that GDP growth will continue to be driven mainly by domestic demand rather than net exports. Indeed, while we were slightly too optimistic on growth for 2013, our expectation of a shift in the shape of growth ( see 'Households To Become Principal Growth Driver', April 5, 2013) is playing out, with the Federal Statistics Office reporting that net exports contributed negatively to the headline growth rate for the first time since 2009.
|Positive Signals For Domestic Demand|
|Germany - Industrial Production (SA) % chg y-o-y and Markit / BME Manufacturing PMI|