The German economy showed signs of strain in the second quarter of 2024, with GDP shrinking by 0.1 percent compared to the first quarter. This downturn marks a reversal from the modest growth seen earlier in the year and signals a cooling of economic momentum.

Consumer spending remained relatively stable, showing a slight uptick, but private consumption dipped by 0.2 percent, highlighting household caution. In contrast, government spending rose significantly by 1.0 percent, suggesting increased public sector activity to counterbalance private sector weaknesses. Investment saw a notable decline, particularly in machinery, equipment, and vehicles, which fell by 4.1 percent, while building investments decreased by 2.0 percent. Foreign trade offered no relief, with exports down by 0.2 percent and imports stagnating.

Year-over-year, price and calendar adjusted GDP growth remained flat but grew by a modest 0.3 percent unadjusted. Equipment investment plummeted 6.5 percent, and building investments fell 3.2 percent, underscoring a broader investment slump. Meanwhile, consumer spending and government consumption provided some stability, with year-over-year increases of 0.9 percent and 2.9 percent, respectively.

This mixed economic performance reflects ongoing challenges and a cautious outlook for the coming months. That said, today's update puts the German RPI at minus 22 and the RPI-P at minus 29, both readings showing economic activity in general running well behind market expectations.

No revisions are expected to the flash data.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Following the release of the flash estimate about two weeks earlier, the second report incorporates additional data to provide a more accurate reading. It also contains details of the key GDP expenditure components and full national accounts.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower. Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.