15 November 2006

EZA 768 Briefing Note:

Germany, Euro Area Economy

German GDP growth outpaces the euro area – trend or cycle Economic buoyancy in Germany seen in the first half of this year spilled over into the second half year with 3Q06 GDP growth coming in at 0.6% q/q, the euro area total. Growth in 1Q06 and 2Q06 had been revised up to 0.8% and 1.1% respectively, implying German economic out performance of the euro area for the third consecutive quarter. While this is widely seen as cyclical strength – as implied by business surveys – German performance may also reflect structural improvements on jobs and in construction. This would help a swift recovery in Germany from the VAT related shock in 2H07, with Germany’s growth aligned to the euro area and less cyclical pressure than thought.

Asset conclusions: cooling economic growth in the euro area plus more structural content of German growth bode well for performance both of bond equity markets.

© Graham Bishop