German growth slows more than expected

German growth slowed more than expected in the first quarter of 2015 as foreign trade weighed on Europe's largest economy. The economy grew by 0.3 per cent on the quarter between January and March after pulling off a 0.7 per cent expansion in the final three months of 2014, preliminary data from the Federal Statistics Office showed on Wedneday.

That undershot the consensus forecast in a Reuters poll for 0.5 per cent growth and was far weaker than in neighbouring France, where the economy expanded by 0.6 per cent on the quarter, its strongest rate in two years.

“Weak global trade is hitting German industry - an export heavyweight - and if the consumers start refraining from spending too, overall economic growth will decline rapidly,” said Thomas Gitzel, chief economist at VP Bank. “But there’s no reason to be miserable - the euro is weak and interest rates are low, both of which point to somewhat solid growth in the coming quarters,” he said. The Statistics Office said public and private consumption, as well as investment in construction and equipment, had contributed positively to growth. Trade was a drag as imports rose more sharply than exports.

While Germany has been an export-oriented economy for much of the past decade, household spending is now the main growth driver as weakness in euro zone trading partners and international crises dampen foreign demand for German goods and services.

France

Meanwhile, cheap oil and a weak euro lifted the French economy in the first quarter to growth of 0.6 per cent, its fastest rate in two years and easily beating analysts’ expectations.

The strong quarter-on-quarter data was supported by consumer spending, corporate investment, industrial output and inventories, while exports slowed. It was the highest growth reading for the French economy since the second quarter of 2013 and was twice as high as that in Britain and Germany, which both reported a slowdown in the rate of output growth.

“The sharp acceleration in activity during the first quarter ...points to growth in 2015 being somewhat stronger than the 1.0 per cent expected by the government,” IHS Global Insight economist Diego Iscaro said. “However, we still do not estimate that the recovery will be strong enough to make a significant dent into France’s high unemployment rate”.

Reuters