The German economy extended its growth spurt in the second quarter, playing into the hands of German Chancellor Angela Merkel as she bids for a fourth term.
GDP in Europe’s largest economy rose 0.6 percent in the April-June period.
While that is below the 0.7 percent growth estimate in a Bloomberg survey of economists, the Federal Statistics Office revised up first-quarter output to 0.7 percent.
The report comes as Germany enters the final stretch of campaigning ahead of a Sept. 24 election, with opinion polls showing Merkel leading her Social Democratic challenger Martin Schulz by as much as 17 points.
SOLID GROWTH
Merkel’s Christian Democratic Union-led bloc is benefiting from solid economic growth — bolstered by a pickup in consumer spending thanks to receding joblessness and an increase in investment.
Germany has seen “several years of pretty strong economic performance,” Jack Allen, a European economist at Capital Economics in London, said before the report.
“The unemployment rate is very low, the economy has done very well particularly by the eurozone standards, so it’s quite possible that it will boost support for the incumbent party,” Allen said.
Growth in the second quarter was driven by domestic demand, the statistics office said.
Consumers and the government significantly stepped up spending. Investment in equipment and construction also increased from the previous three months.
Trade dampened economic output as imports rose considerably faster than exports, according to the report.
The economy expanded 2.1 percent from a year earlier, when adjusted for working days.
The numbers vindicate the optimism expressed by the Bundesbank last month, when it said the economy probably grew robustly in the second quarter.
CAPACITY CONSTRAINTS
While Ifo’s business climate index jumped for a sixth month last month, suggesting prospects remain favorable, a purchasing managers’ index (PMI) signaled that growth may be leveling off as companies hit capacity constraints and a stronger currency begins to bite.
The euro has appreciated about 12 percent this year against the US dollar and more than 18 percent in trade-weighted terms.
“Exchange-rate swings are not going to have the same effect as on, say, Spanish exports, but we are still going to see some impact,” Florian Hense, an economist at Berenberg Bank in London, said before the report.
“If you look at the PMI as the first leading indicator it signals that some sort of plateau has been reached,” Hense said.
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