Despite the war, German economy surprises markets

German growth slowed slightly in the second quarter of the year, holding up better than expected in the face of the fallout from the war in the Middle East, thanks in large part to a rebound in exports, according to a note from the central bank. Gross domestic product in Europe’s largest economy rose by 0.2 percent between April and June, according to Destatis, the Federal Statistical Office, which was 0.1 percentage point above forecasts by FactSet. Destatis also revised up the growth rate recorded in the first quarter, raising it from 0.3 percent to 0.4 percent.

The German economy appears to have coped better than anticipated with the repercussions of the energy crisis triggered by the conflict between Iran and the United States and the closure of the vital Hormuz Strait, which disrupts fuel supplies. However, the second-quarter estimates were compiled before hostilities in the Middle East resumed in July, which exacerbated energy price volatility and uncertainty, particularly as the conflict’s reach recently expanded to include the Red Sea, where Iran-backed Yemeni Houthi rebels targeted ships in the Bab al-Mandab strait.

The Bundesbank noted that “the industrial sector remained resilient” in April and May, driven by “dynamic external demand and rising exports.” According to the central bank, the war contributed to the growth of German exports relative to competitors on the international stage, particularly in Asia, “who were more affected by disruptions in intermediate goods.” German consumers were not significantly affected by “rising energy prices,” according to the Bundesbank. The central bank pointed out that “expansionary fiscal policy is supporting economic activity.” After several years of stagnation, the German economy is counting on investments worth hundreds of billions of euros in defense and infrastructure.