Chart of the week

Finalised data for first-quarter 2019 German growth saw the economy expand 1.7% on an annualised basis. The demand breakdown shows that both domestic consumption and investment continue to be buoyant. Inventory, or more precisely inventory rundown, was a significant drag on growth for the second consecutive quarter.

Unsurprisingly then, manufacturing dragged on growth while activity across other sectors gathered pace. For the first time since the 2008–09 recession, the manufacturing sector contracted for three straight quarters.

OUR ANALYSIS

The slowdown in manufacturing is currently due to inventory adjustments resulting from both uncertainty in global trade and normalisation in the car-manufacturing industry. Meanwhile, exports have reached new highs and domestic demand is also rising.

Monthly changes in manufacturing output (rebounds in January and February followed by a fall in March) combined with consistently weak PMI (1) and IFO surveys appear to signal a contraction for the second quarter, which will perpetuate the inventory adjustments.

If final demand levels remain healthy then this inventory-induced fall in manufacturing will likely clear the way for a growth rebound in the second half of 2019.

(1) PMI : PMI indices are confidence indicators that summarize the results of surveys conducted among company purchasing managers. A value greater than 50 indicates a positive sentiment in the sector concerned (manufacturing or service)

The opinion expressed above is dated May 23rd, 2019, and liable to change.

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS.