Bonn Gdp Data Seen Overstating Recovery

The gross domestic product figure for the second quarter due for release tomorrow morning. GDP is seen growing 1.0 to 1.5 per cent from the previous quarter, more than making up for a 0.4 per cent decline in the first quarter.

But that would mean it could remain flat for the second half of the year and still reach the government's forecast of 0.75 per cent growth in 1996.

Analysts fear that the government bond or Bunds market could see a sell-off on Thursday after the data are released, but they advise this would be the wrong direction.

This figure would clearly be an exaggeration of underlying growth, and if the Bunds market is sold off it would be a good buying opportunity, said economist Holger Fahrinkrug at UBS in Frankfurt.

 

Deutsche Morgan Grenfell analyst Manuela Preuschl agreed: There is a risk that an impressive Q2 figure may be misinterpreted as the starting shot of a strong recovery in Germany ... The pace of growth in Q2 cannot be maintained.

Bundesbank chief economist Otmar Issing said on Monday second-quarter GDP would be clearly above the bank's earlier expectations, due to both core growth and recovery from the severe winter.

Private-sector economists said the strong growth foreseen for the second quarter is largely a function of the weakness of the previous quarter and the turbulence of 1995 data.

Industrial production and orders data for July, and unemployment data for August, all due this week, should be more recent and reliable indicators of the state of the economy than the Q2 GDP data, they said. The recovery still looks fragile as it depends heavily on exports, which are vulnerable to exchange rates.

The mark strengthened sharply against the dollar over the summer.

German consumers, browbeaten by high unemployment, remain reluctant to spend, while the government is cutting back its own spending, and businesses are also hesitant to invest.

A Reuters poll of economists showed average expectations of a 1.1 percent increase in pan-German GDP from the previous quarter, and a 0.6 per cent rise from the year-earlier quarter.

Forecasts ranged from 0.8 per cent to 1.4 per cent for the quarterly figure, and from 0.3 per cent to 0.9 per cent for the annual figure.

In the first quarter, GDP declined 0.4 per cent from the previous quarter, and was up 0.4 per cent from the year-earlier quarter.

For the full year, the government now forecasts 1996 growth at at least 0.75 per cent, accelerating to 2.0 to 2.5 per cent next year.