German Economy Unexpectedly Contracts by 0.1% in Q2 2024

German Economy Contracts by 0.1% in Q2 2024

The German economy contracted by 0.1% quarter-on-quarter in Q2 2024 amid increasing concerns about the broader Euro area economy. In Q1 2024, the German economy expanded by 0.2% quarter-on-quarter.

According to Destatis,

• The German economy contracted 0.1% year-on-year in Q2 2024 after shrinking 0.2% year-on-year in Q1 2024.
• Investments in equipment and buildings contributed to the contraction.

The German Economy and the ECB Rate Path

The unexpected economic contraction could pressure the ECB to consider multiple 2024 rate cuts to bolster the Euro area economy.

However, the ECB’s focus remains on wage growth and inflation trends. German and Eurozone inflation numbers on Tuesday and Wednesday could be crucial data releases for the ECB.

The EUR/USD Reaction to the German GDP Report

Before the GDP Report, the EUR/USD fell to a low of $1.08143 before climbing to a high of $1.08268.

However, in response to the GDP Report, the EUR/USD fell to a low of $1.08160 before rising to a high of $1.08274.

On Wednesday, July 30, the EUR/USD was up 0.04% to $1.08244.

Next Up

Preliminary Eurozone GDP and German inflation numbers will draw investor attention. The German inflation figures will likely influence the ECB rate path more.

Economists expect the annual inflation rate to stay at 2.2%. Softer-than-expected inflation figures could fuel speculation about multiple 2024 ECB rate cuts.

Investors should also monitor ECB commentary. ECB reaction to the German GDP and inflation figures could shift investor sentiment toward the ECB rate path.

US Economic Calendar

US Consumer Confidence and labor market data could influence investor expectations of a September Fed rate cut.

Economists expect the CB Consumer Confidence Index to fall from 100.4 in June to 99.5 in July. Downward trends in consumer confidence could signal a pullback in consumer spending, dampening demand-drive inflation. A softer inflation outlook would support a more dovish Fed rate path.

However, labor market conditions remain pivotal. Lower-than-expected JOLTS Job Openings could raise bets on multiple 2024 Fed rate cuts. Softer labor market conditions could affect wage growth and reduce disposable income. Downward trends in disposable income could reduce consumer spending.

Economists expect the JOLTS Job Openings to fall from 8.14 million in May to 8.03 million in June.