One ray of light in the advance estimates of gross domestic product for the first quarter 2009 was the rebound in private consumption following the sharp downward correction in the second half of 2008.  The appreciable rise in disposable income created leeway here.  At the same time, the savings rate of private households also climbed by a full percentage point.  Unlike in the final quarter of 2008, roughly half of the decline in aggregate output was attributable to the drastic reduction in inventories. A renewed slide in inventory investment on this scale appears unlikely, particularly as the portents for final demand are now more favorable.  For one thing, new orders for capital goods have recovered since February, and the latest surveys in the manufacturing sector also signal an improvement in the assessment of new orders.  For another, the stimulus package which is now being implemented will bolster government spending and consumption (tax relief, higher transfer payments). All told, we expect economic activity to stabilize in the coming months.

Thomas Hofmann

e-mail: t.hofmann@allianz.com