The Herthafication of the German economy continues as growth streak extends
The German economy is experiencing an unexpected growth streak, with four consecutive quarters of GDP expansion, which has raised questions among observers. Per the full note , growth remains fragile due to factors like reduced competitiveness in exports and investment. As we see both positive fiscal stimuli and inventory dynamics at play, consensus appears optimistic yet cautious about sustainability. Key market players should note potential shifts in positioning ahead of upcoming releases of monthly economic indicators.
What the desk is arguing
The desk asserts that Germany's current growth trajectory, likened to an unexpected winning streak akin to Hertha Berlin's fortune, is masking underlying fragility. Per the full note , indicators reflect that while GDP increased by 0.2% quarter-on-quarter and 1.2% year-on-year, growth is heavily reliant on transient factors rather than a robust recovery.
The latest data supports the thesis with monthly indicators indicating that private consumption is propping up the economy. However, the decline in exports and the possible hoarding of inventory suggest that businesses may be wary of genuine demand recovery. This creates uncertainty regarding whether this growth is sustainable or merely temporary.
Where it sits in our coverage
Our consensus target for the EUR/USD pair stands at 1.075, with a range of 1.04-1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's perspective aligns with the upper bound of the consensus spread, particularly resonating with the more optimistic outlook presented by jpmorgan. Given the economic context, however, caution remains key as the potential for volatility persists.
How other firms see it
Firms aligned with the desk's outlook include jpmorgan, advocating for a more bullish stance, whereas firms like bofa represent a more cautious view. Current sentiment shows a split, with optimism among some market players contrasted by more reserved evaluations by others.
In connection to these developments, the trajectory of EUR/USD seems influenced by upcoming data releases which may reveal more about the economic fundamentals and central bank stances. Monitoring these indicators, particularly around consumer spending, will be crucial for further insights into market dynamics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Germany's economy has recorded its longest growth streak since the end of pandemic lockdowns.
- 02Growth is primarily driven by private consumption, with exports and investments showing weakness.
- 03Factors such as fiscal stimulus and inventory dynamics are crucial in assessing the sustainability of this growth.
- 04Consensus remains cautious, with market splits between optimistic and bearish forecasts.
Market implications
Traders should watch the EUR/USD pair closely, particularly levels around 1.075, as discussions regarding future growth dynamics unfold. Continued positive indicators in upcoming months could solidify bullish sentiment, while any adverse news could lead to a reassessment of current positions.
Risks to this view
Any reversal in growth dynamics, particularly stemming from a decline in consumer spending or negative shocks to the export market, could challenge the current bullish outlook and prompt a reassessment of EUR/USD positioning.
Older quick take Quick take Published 09:08 Germany The Herthafication of the German economy continues as growth streak extends Four quarters of growth in a row, and almost everyone wonders ‘why’. Like Hertha Berlin football club, the German economy is on an unexpected winning streak, but that doesn’t guarantee a lasting comeback The German economy is on an unexpected winning streak The German economy continues its recent upswing and is on its longest growth streak since the end of the pandemic lockdowns. GDP grew by 0.2% quarter-on-quarter in the third quarter, from 0.3% QoQ and by 1.2% year-on-year – the fourth consecutive quarter of growth.
Details will be released in a few weeks, but the available monthly data and the statistical office's press release suggest that growth was driven by private consumption, while exports and investments weakened. On track for the best year since 2022 So far, the German economy has weathered the energy price shock better than feared. Three factors explain why: one-offs, inventories and fiscal stimulus.
The most important one-off is that other regions were hit harder by the closure of the Strait of Hormuz. Industrial orders shifted mainly from Asia to Europe, turning some German companies into unlikely crisis beneficiaries. That's a windfall, not a comeback in competitiveness.
Second, monthly indicators point to inventory build-up in recent months. Whether that's good or bad news depends on the motive. If companies are restocking because they expect more orders, it's a prelude to higher production.
If they are simply hoarding inputs out of fear of further disruption, it's borrowed growth that will be paid back once stocks are run down. The jury is still out. Third, the large fiscal stimulus – investment in defence and infrastructure – is gradually reaching the economy.
Parts of it are still seeping away in the morass of bureaucracy and regulation, but the first growth effects are visible. A rebound is not yet a recovery Looking ahead, the outlook remains highly conditional on the fiscal stimulus and the speed and degree at which it feeds through to the entire economy. That's the cyclical story.
The structural one hasn't changed: to turn this rebound into a sustainable recovery, Germany still urgently needs reforms to restore international competitiveness. And the risks are hard to miss, both cyclically and structurally. The war in the Middle East could escalate further, possibly after next week's US mid-term elections, keeping oil prices elevated or pushing them even higher.
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