More ugly data ahead of German Q3 GDP

We have seen in previous quarter a bunch of disappointing soft and hard data, such as industrial production, that tend to confirm that the Q3 GDP print, that will be published on Wednesday morning, will be very disturbing for investors. The consensus expects Q/Q growth contracted at minus 0.1% of GDP in Q3 but we cannot exclude a slightly more negative figure at minus 0.2% of GDP.

The German economy took a pause in Q3 that can be largely explained by the slowdown in international trade and the drop in the global car market. The two main markets – the United States and China – are facing a downtrend in sales. In the United States, auto sales are now in contraction, compared to the same period last year, which will seriously affect the outlook for clearing 2018 models and bringing 2019 models on stream. In China, the situation is even more worrying: auto sales have in September posted their biggest drop in seven years as that country's growth engine stalls.

Despite the negative ZEW print this morning, it is too early to call for another growth contraction in Q4. In fact, it is highly unlikely. We expect that growth will slightly rebound by end-year. However, we also acknowledge that the German economy is, contrary to what is commonly believed, ill-prepared to face the challenges of the 21st century. It is lagging behind in respect of EV, digitalisation, infrastructure investment and even start-up industry.