Stronger German recovery depends on export revival

Last week’s data gave mixed signals about Germany. On the one hand, the second GDP release showed that Q1’s slowdown belied a strong domestic economy and May’s Ifo survey pointed to a pick-up in growth to come. But on the other, the PMI fell to a level consistent with near stagnation.

While the consumer outlook is fairly bright, we doubt that the strong growth rates of recent quarters will be sustained as inflation edges up. But, provided that a Greek exit or default does not derail business sentiment, export growth should respond more strongly to the weakness of the euro in the coming quarters. Accordingly, we still see German GDP rising by a healthy 2.0% this year.