Sat, Nov 23, 2013 - Page 15 News List

Domestic demand drove Germany’s GDP growth in Q3

LOCAL FOCUS:The shift may counter criticism from the IMF and the US that Germany’s reliance on exports is hampering EU and global growth

Bloomberg

German economic growth was driven exclusively by domestic demand in the third quarter, as investment and construction offset an export slowdown.

Capital investment rose 1.6 percent in the three months through September from the prior quarter and construction increased 2.4 percent, the Federal Statistics Office in Wiesbaden said yesterday. GDP growth slowed to 0.3 percent from 0.7 percent, it said, confirming its estimates on Thursday last week.

Germany is relying more on its domestic economy as the euro area, its biggest export destination, struggles to sustain a nascent recovery. Growth in the 17-nation currency bloc almost stalled in the third quarter, as the French economy unexpectedly shrank and Italy extended a record-long recession.

“The investment surge was much stronger than we and consensus had expected and bodes well for an investment-led expansion next year as well,” said Christian Schulz, senior economist at Berenberg in London.

Domestic demand “highlights Germany’s potential to continue to play a positive role in supporting the euro-zone crisis countries’ export-led recovery,” he said.

GDP grew 0.6 percent from a year earlier when adjusted for working days, the report yesterday showed.

Government spending rose 0.5 percent from the prior quarter and private consumption gained 0.1 percent. Total domestic demand added 0.7 percentage points to GDP, while net trade subtracted 0.4 percentage points. Exports rose 0.1 percent, while imports climbed 0.8 percent, the report showed.

Germany’s increased reliance on its home economy may counter criticism from the IMF and the US Treasury, which have said the nation is hampering European and global growth by focusing too heavily on exports. EU regulators said on Wednesday last week they had started a probe of Germany’s trade surplus.

Germany’s economics ministry rejected the criticism on Oct. 31 as “not justified” and German Chancellor Angela Merkel said in Berlin on Thursday that it would be “absurd” to try make German companies reduce production or cut back on quality.

The Bundesbank said in its monthly report on Monday that Europe’s largest economy is on a “solid” path that points to it growing according to its potential.

Meanwhile, German business confidence rose more than expected this month, with the Ifo institute’s business climate index, based on a survey of 7,000 executives, increasing to 109.3 from 107.4 last month. Manufacturing activity surged to the highest in almost two-and-a-half years this month, an index by London-based Markit Economics showed on Thursday.

Economists forecast an expansion of 0.4 percent in the final three months of this year, while the European Commission predicts growth of 0.5 percent this year. By contrast, the commission forecasts the euro-area economy would shrink 0.4 percent this year.

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