German economy grows at twice UK rate

Construction and exports help boost GDP by an adjusted 0.6 per cent in quarter

The strong performance of Europe’s largest economy is adding to signs of a firming recovery in the euro area. Photograph: iStockPhoto

The strong performance of Europe’s largest economy is adding to signs of a firming recovery in the euro area. Photograph: iStockPhoto

 

German economic growth accelerated to the strongest pace in a year last quarter as mild weather boosted construction and exports benefited from recovering global demand.

Gross domestic product rose a seasonally adjusted 0.6 per cent in the three months through March, the federal statistics office in Wiesbaden said on Friday. That’s in line with the median estimate in a Bloomberg survey, and follows an expansion of 0.4 per cent in the fourth quarter of 2016. GDP was up 1.7 per cent from a year ago when adjusted for the number of working days.

The figures mean Germany’s expansion was twice that of the UK, which saw GDP growth of 0.3 per cent.

The strong performance of the region’s largest economy is adding to signs of a firming recovery in the euro area and comes as some European Central Bank officials start to debate an eventual exit from monetary stimulus. The Bundesbank said last month that German growth had gained significant momentum in the first quarter, and recent data has signalled that the upswing is set to continue, with business sentiment at its strongest level in almost six years and joblessness falling.

Strong momentum

“Economic momentum is extremely robust and very broadly based,” said Jens Kramer, an economist at NordLB in Hanover. “The steady increase in employment is fertile soil for domestic demand, and trade is providing impulses as well.”

Private and government consumption rose slightly at the start of the year, the statistics office said. Investment picked up strongly, with construction bolstered by favourable weather conditions and equipment spending surging, according to the report. At the same time, trade gathered momentum as exports outpaced imports.

“There is every reason to believe that this year overall will be better than last,” Jennifer McKeown, an economist at Capital Economics in London, said before the report. “Global growth is improving, which should boost net exports. We’re also finally beginning to see wages pick up and this should help consumer spending.”

In a further sign that economic prospects are brightening, the European Commission said on Thursday that growth in the 19-nation euro area will be slightly stronger this year than previously predicted, adding that some risks to the outlook had diminished. It lifted its 2017 GDP forecast to 1.7 per cent from 1.6 per cent and maintained its 2018 projections at 1.8 per cent.

‘Broad-based upswing’

That message is in line with the latest assessment of ECB officials. ECB president Mario Draghi told Dutch legislators earlier this week that the economic recovery had turned into a “firming, broad-based upswing”. Still, loose policy continues to be needed as there is little sign yet of faster growth feeding into inflation. ECB vice-president Vitor Constancio said that it was less risky to keep policy loose for longer than prematurely withdrawing stimulus, and suggested officials may not decide on their future course of action before September.

The euro-area economy expanded 0.5 per cent in the first quarter as growth slowed in France and accelerated in Spain. Eurostat will publish another estimate on Tuesday. The Netherlands, Italy, Portugal and Greece are due to release their numbers before the regional report. – (Bloomberg)