Private consumption drives German growth in second quarter

Economy grows 0.6 per cent as consumption replaces exports as main engine for growth

Consumers were the main source of growth in Germany in the second quarter, data showed on Friday, as Europe’s largest economy reaped the benefits of record-high employment, rising wages and low interest rates.

The German economy grew by 0.6 per cent in April to June, the federal statistics office said, lending support to Chancellor Angela Merkel’s campaign for re-election, which revolves around a promise to create jobs and cut taxes.

Private consumption rose by 0.8 per cent, contributing 0.4 percentage points to growth in gross domestic product (GDP). A labour market hungry for manpower has driven up wages, and low interest rates set by the European Central Bank are encouraging Germans to spend rather than save.

"Private consumption remains a reliable driver of growth," said Thomas Gitzel, an economist at VP Bank. "When there are no interest rates on one's account, spending becomes easy."



Consequently, consumption has become the main engine for growth in Germany, replacing exports, which rose 0.7 per cent on the quarter as imports increased by 1.7 per cent. The imbalance meant trade subtracted 0.3 percentage points from growth.

"The negative impact of trade on growth should not be seen too negatively, as this is the result of dynamic imports and not a sign of weak exports," said Stefan Kipar, an economist at Bayern. "The growth traffic light remains green."

Besides private consumption, the economy also gained from state spending and investments in construction and equipment.

German manufacturers continue to hire and invest in equipment to meet rising orders, which in June rose twice as much as expected. Investment in machinery and equipment rose 1.2 per cent, adding 0.1 percentage points to GDP growth.

Rising state spending, mainly on infrastructure and refugees, also contributed to growth by fuelling a boom in construction. Investment in construction jumped by 0.9 per cent, adding 0.1 percentage points to growth.

Orders for construction companies rose by 5.5 per cent in the first six months compared with the same period last year, the statistics office said, signalling that construction will remain strong in the coming months. – (Reuters)