German economy ‘probably grew strongly’ in second quarter

Higher private consumption and investment in construction boosted growth, says ministry


The German economy is likely to have expanded significantly between April and June, helped by higher private consumption and investment in construction, but growth will be more modest in the rest of the year, the economy ministry said.

“The German economy grew briskly in the spring,” the ministry said today in its monthly report. “After the weather dampened growth in the first quarter, there was a growth spurt in the second quarter due to catch-up effects.”

The modest underlying rate of growth in the economy should accelerate slightly in the rest of year, held back by the tough European and international environment, the ministry said.

The Bundesbank said in June that the German economy would slow down after a surge in the second quarter and expected just 0.3 per cent growth for the year as a whole.

Since then, the data picture has brightened somewhat, with industrial production and orders increasing much more briskly than expected in June.

Preliminary data on second quarter gross domestic product (GDP) in Europe’s largest economy is due on August 14th - five weeks before parliamentary elections. Economists are forecasting growth between 0.6 and 1 per cent on the quarter.

Europe’s economic powerhouse performed strongly in the early years of the euro zone crisis but only narrowly avoided a recession in early 2013 thanks to private consumption, which has been strong thanks to stable employment, wage increases and moderate inflation.

“Private consumption remains an important pillar of the economy and like in the first quarter, it likely made a strong contribution to growth in the second quarter,” the ministry said.

The ministry said foreign trade would likely dampen growth, though investment in capital equipment had continued to stabilise. Slowing investment, combined with weak exports, drove Germany to a contraction in the last quarter of 2012.

Industrial output would continue to grow in the coming months, but not too dynamically. Recent data has also shown the private sector expanding, business and consumer morale brightening, industry orders surging, unemployment falling and exports rising modestly.

The ministry said the economy still faced headwinds from the struggling euro zone and a tough international environment. For Germany to remain the region’s anchor of stability and growth engine, it is important to increase firms’ willingness to invest and thereby boost growth potential, the ministry said.