German economic figures impress but clouds are gathering

Europe’s largest economy is experiencing a best-of-times worst-of-times moment, with solid growth and its biggest budget surplus since unification overshadowed by growing jitters about the months ahead.

The federal statistics office released figures on Tuesday showing “solid and consistent” growth of 1.7 per cent last year and a combined € 19.4 billion surplus on all federal, state and local public budgets.

“That is, in absolute terms, the highest since unification”, the statistics office said, around 0.6 per cent of overall economic output.

It was the second year Germany generated a surplus, up from 8.9 per cent in 2014, and the money will come in useful as authorities struggle to finance the continuous wave of asylum seekers, which hit 1.1 million last year.

“The economic situation in Germany in 2015 was characterised by solid and consistent growth,” the statistics office said. “Positive impulses came primarily from domestic demand.”

Public spending grew by 1.0 per cent in the fourth quarter, it said, while household spending increased by 0.2 per cent.

Another driver of growth was construction investment - up 2.2 per cent over the last quarter of 2015, driven largely by public investment.

But statistics office figures suggests clouds are gathering, with Germany’s crucial export figures slipping 1.7 per cent in the fourth quarter.

Further clouds are visible on the horizon, with finance market turbulence and US economic concerns causing the closely-watched Ifo business confidence index to slump for the third consecutive month.

The Ifo index dropped in February from 107.3 to 105.7, with managers surveyed by the Munich economic institute particularly concerned about their companies’ prospects in the coming six months.

“The concerns of the German economy are growing, in particular those of industry,” said Prof Hans-Werner Sinn, Ifo president.

The looming uncertainties are in stark contrast to the year just past, with 1.7 per cent growth in 2015 and a similar forecast for 2016. But economic analysts said the concerns of Ifo-quizzed company managers should not be brushed under the carpet.

“The managerial floor has woken up to the drop in demand in the world economy,” said ING-Diba economist Carsten Brzeski to Spiegel Online.

Other analysts agreed, pointing to the series of negative developments, from the extreme low oil price pushing down production prices and incomes of oil-producing countries.

Many German companies fear the growing migration crisis could cause the collapse of the Schengen free-travel area, hobbling the export-driving German economy.