Upswing for German economy but investors still wary

Economics minister predicts ‘solid upturn’ as data incidates growth will hit 1.8% this year and 2% in 2015

German economics minister Sigmar Gabriel: said “the driving force” behind growth  is domestic demand. Photograph: John MacDougall/AFP

German economics minister Sigmar Gabriel: said “the driving force” behind growth is domestic demand. Photograph: John MacDougall/AFP

Wed, Apr 16, 2014, 01:00

Germany is facing into a broad-based, domestic-driven economic upswing, official data indicated yesterday, with growth hitting 1.8 per cent this year and 2 per cent in 2015.

After growth of just 0.4 per cent in 2013, economics minister Sigmar Gabriel yesterday said he was optimistic the “solid upturn” in the economy would not be clouded by uncertainty in Ukraine. “The driving force is domestic demand,” said Mr Gabriel, citing a series of positive indicators, including “favourable developments on the labour market, strong increases in household income, positive business sentiment and rising investment”.

The official data tallies with other forecasts for 2014 and 2015: the Bundesbank forecasts 1.7 per cent and 2 per cent respectively; last week Germany’s leading economic agencies predicted 1.9 per cent and 2 per cent.

But the so-called economic “wise men” warned growth could be cooled down by new government policies such as the decision to lower the retirement age to 63 for workers who have 45 years of pension contributions. An €8.50 minimum wage from 2015 could cool down growth and cost 200,000 jobs, they warned.


Poverty wages
Mr Gabriel dismissed this claim yesterday saying the end of “poverty wages” in Germany would drive domestic demand. The official forecast says Germany’s jobless rate, already at a post-unification low, will dip to 6.7 per cent this year and 6.6 per cent in 2015.

But the closely watched investor confidence index, issued by the ZEW economic institute, fell by 3.4 points to 43.2 points in April – the lowest level since August 2013. The ZEW said the fourth consecutive monthly drop, steeper than analysts expected, had been triggered by continued uncertainty over the situation in Ukraine.