Domestic-led growth bolsters Germany in trade showdown

Economy driven by robust rise in domestic demand

Fri, Nov 22, 2013, 14:45

A robust rise in domestic demand overshadowed weak exports to drive a 0.3 per cent expansion in the German economy in the third quarter, giving the government ammunition in its showdown with Brussels over euro zone trade imbalances.

The European Commission is investigating Germany’s persistently high current account surplus amid criticism that it relies too heavily on exports, yet Friday’s breakdown showed that net trade deducted 0.4 percentage points from third-quarter growth.

“With today’s data the latest criticism on the German growth model looks a bit like crying over spilled milk,” said Carsten Brzeski, senior economist at ING. “The often called for rebalancing of the economy is already taking place.”

Domestic demand was the main growth driver, rising 0.7 per cent in the quarter. Investment, which began the year sluggishly, rose by a robust 3.0 per cent, propelled by a strong increase in construction.

Private consumption added 0.1 percentage points to GDP. A robust labour market, moderate inflation and strong wage hikes have boosted household spending in Germany.

Berlin is relying on domestic demand to prop up growth this year as the traditionally export-driven economy suffers from the weakening demand from its euro zone partners and a slowdown in emerging markets.

The German economy put in a stellar performance during the early years of the euro zone crisis but growth slowed last year. After stagnating in the first quarter of this year, it posted bumper growth of 0.7 per cent between April and June but that was mostly due to weather-related catch-up effects.

Data last week showed economic growth in Germany helped the euro zone stave off stagnation as France and strugglers like Greece and Italy contracted. But German growth was only marginally stronger than bailout recipient Portugal’s 0.2 per cent expansion.

Economists expect solid growth in the fourth quarter. The Bundesbank said this week Germany was growing solidly and its upturn would likely be consolidated in the coming months thanks to domestic demand and an improved global environment.

This week a survey showed the private sector’s expansion gaining traction in November, suggesting the economy could expand by 0.5 per cent in the final three months of the year.

But recent hard data, much of it backward-looking, has been more mixed, with industrial orders, exports and retail sales rising, though imports have fallen and unemployment has climbed.

The government expects growth of 0.5 per cent this year and 1.7 per cent next year. (Reuters)