Despite the consequences of the Ukraine war, the German economy surprisingly stayed on course for growth in the spring.

Between April and June, the gross domestic product (GDP) increased by 0.1 percent compared to the previous quarter, as the Federal Statistical Office (Destatis) announced on Thursday and thus revised a flash estimate.

At first there was talk of zero growth.

At the beginning of the year there was an increase of 0.8 percent.

"Despite the difficult global economic conditions, the German economy held its ground in the first two quarters of 2022," said Destatis President Georg Thiel.

Compared with the fourth quarter of 2019, i.e. the quarter before the start of the corona pandemic, it shows that GDP in Germany reached the pre-crisis level of the fourth quarter of 2019 for the first time in the spring.

However, it is more than questionable whether the German economy will be able to remain above zero growth in the third quarter.

The mood in the German executive floors deteriorated again in August.

The business climate index of the Munich Ifo Institute, which was also published on Thursday, fell to 88.5 points after 88.7 points in July.

The barometer, which is based on a monthly survey of around 9,000 companies, is the most important leading indicator for the German economy.

While companies were somewhat less satisfied with their current business, the outlook for the coming months remained "almost unchanged and clearly pessimistic," said Ifo President Clemens Fuest.

Uncertainty among companies remains high.

"Economic output is likely to shrink in the third quarter," he expects.

Other sentiment indicators are also suggesting that economic activity slowed further in August.

The S&P Global (formerly Markit) Purchasing Managers' Index, which is based on a monthly survey of around 800 companies, fell 0.5 points to 47.6 points, well below the 50-point threshold that signals growth.

It was the second decline in a row.

The last time the value was so low was in June 2020, i.e. at the beginning of the Corona crisis.

S&P economist Phil Smith said the data painted "a bleak picture of the German economy".

The slowdown in the service sector has exacerbated the ongoing weakness in the industry.

Consumption was still a pillar in the spring

According to Destatis, however, the German economy was still supported by private and government consumer spending in the second quarter.

Trade with foreign countries increased overall.

Although significantly fewer goods were exported to Russia in the second quarter than at the beginning of the year under the impact of the war in Ukraine, companies reported stable exports overall: Despite the disrupted global supply chains, 0.3 percent more goods and services were exported than in the first Quarter.

However, imports increased more sharply by 1.6 percent compared to the previous quarter.

In its monthly report published on Monday, the Bundesbank expects economic output to “roughly stand still” in the summer.

Nevertheless, the Bundesbank economists also emphasized that a decline in economic output in the winter half-year had “become significantly more likely”.

"The economic development in Germany will be affected by the unfavorable developments on the gas market in the summer quarter and beyond," they explained.

Meanwhile, the German government deficit fell sharply in the first half of the year.

By the end of June, the federal government, states, local authorities and social insurance together spent 13.0 billion euros more than they earned.

The deficit corresponds to 0.7 percent of the gross domestic product.

In the first half of 2021, the deficit was still 75.6 billion euros, which corresponded to a deficit ratio of 4.3 percent.

While the federal government reported a minus of 42.8 billion euros, both the federal states (+16.6 billion euros), the municipalities (+5.7 billion euros) and the social security funds (+7.4 billion euros) wrote black this time Counting.

Tax revenues increase significantly

Tax revenue increased by 11.6 percent in the first half of the year, significantly exceeding the level before the Corona crisis in the first half of 2019. "Corporate taxes played a large part in this," according to the statisticians.

Revenues from trade tax (+27.7 percent), assessed income tax (+24.8 percent) and corporation tax (+19.4 percent) recorded strong growth.

In addition, revenue from sales tax and import sales tax increased (+15.5 percent) under the influence of inflation.

At the same time, spending increased only slightly as subsidies fell by 50.1 percent.

“The reason for this was in particular the expiry of various corona measures,” it said.

The Bundesbank also expects a deficit for the year as a whole, but this should be lower than in 2021 at 3.7 percent.

“The reason is the fading fiscal burdens caused by the corona crisis,” says the current monthly report of the German central bank.

This was reflected in the first half of the year in sharply rising tax revenues and falling pandemic spending.

"As things stand at present, new burdens from the Ukraine war and measures to compensate for high prices will not offset this recovery," said the Bundesbank.