German economic growth stronger than expected

ALIVE AND KICKING::While Europe’s largest economy has shifted into high gear, a dispute with the US over tariffs is clouding the outlook for the second half of the year

Reuters, BERLIN

Wed, Aug 15, 2018 - Page 10

The German economy picked up more steam than expected in the second quarter, driven by higher household and state spending, suggesting that Europe’s biggest economy is powering ahead, despite trade-related business uncertainties.

GDP grew 0.5 percent quarter-on-quarter, the German Federal Statistical Office said yesterday.

That compared with a Reuters forecast of 0.4 percent.

The office also revised up the quarterly growth rate for the first three months of this year from 0.3 percent to 0.4 percent.

“Despite all of the prophecies of doom, the upswing is not only alive; it’s also kicking,” Bankhaus Lampe economist Alexander Krueger said. “For the time being, the upswing is unlikely to be stalled by the global trade dispute or overheating.”

However, a conflict with the US over tariffs is clouding the outlook for the second half, Krueger said.

On the year, the German economy grew 2 percent from April to June, calendar-adjusted data showed.

Analysts polled by Reuters had expected a 2.1 percent expansion.

German economic growth was mainly driven by higher household spending and increased state consumption, the agency said, adding that additional impetus came from investments.

Exports also grew, but were outperformed by even stronger imports growth, suggesting that net trade did not contribute to overall economic growth, the office said.

The figures underpin a gradual shift in the German economy away from its traditionally export-oriented growth model toward a more domestically driven upturn propelled by record-high employment, rising wages and booming construction.

“Contrary to the national football team, the German economy did not have a rude awakening at the start of the summer,” ING Groep NV analyst Carsten Brzeski said. “Instead, the economy has returned as an outperformer of the eurozone.”

A second estimate of second-quarter eurozone economic growth was to be released later in the day. Preliminary figures last month showed growth slowed to 0.3 percent quarter-on-quarter.

Following the stronger-than-expected German growth figures, it is possible that eurozone GDP might also be revised up, Capital Economics Ltd’s Jessica Hinds said.

A separate release from the office showed that consumer inflation, harmonized to make it comparable with other eurozone data, last month remained at 2.1 percent on the year.

It was the third month in a row that German headline inflation exceeded the European Central Bank’s price stability target of close to, but just less than 2 percent for the whole bloc.