Germany: Construction and consumer sentiment lift the economy in Q1

Germany also registered a stalwart growth rate of 0.4% in Q1 2019 compared with the last three months in 2018. After coming within a whisker of a recession at the end of last year, Europe’s largest economy is crawling out of stagnation. First estimates from the Federal Office of Statistics showed positive contributions from the construction sector and consumer spending.

Consumer sentiment in the euro area improved by 0.8 points to -6.5 points in May reports the European Commission. This is way above the long-time average of -10.7 points and comes as growth in the Eurozone economy doubles from 0.2% in Q4 2018 to 0.4% in Q1 2019.

The labour market remains solid with the unemployment rate holding steady at a 39-year low of 3.2% in March following the upward revision in February. Wages continue to rise, thus increasing consumers’ purchasing power and the propensity to spend. Disposable income in 2018 rose 2.4% from the year before.

Inflation in April measured 1.0%, 0.3 percentage points lower than March and with that still far off the European Central Bank (ECB) target of 2.0%. So long we do not see any changes in wage policy, the consumer price index will likely remain around this level.

The interest rate in the euro area has been lingering at 0.0% since spring 2016 and is expected to persist at this level throughout the summer of 2019. An ongoing expansionary monetary policy means that cheap financing is protecting debt laden companies from cost pressures.

Generous financing conditions and robust domestic demand against global headwinds continue to put German real estate on solid footing. Berlin office transaction volumes grew 91% year-on-year in Q1 2019 to EUR 2.02bn. The fact that domestic drivers are sufficiently strong to lift the export-orientated economy is encouraging.