Record employment drives German economic surge

The German economy expanded about a quarter of a percent in the final three months of 2015, with record employment and expansionary monetary policy fuelling domestic consumption at a time of weakening global trade.

Gross domestic product rose 1.7 per cent last year after a gain of 1.6 per cent in 2014, the Federal Statistics Office said in Berlin on Thursday.

Economists surveyed by Bloomberg forecastgrowth of 0.4 percent.

Germany, the euro area's biggest economy, is benefiting like no other member of the 19-nation currency bloc from unprecedented stimulus by the European Central Bank.

With unemployment at a record low, wages rising and oil more than 37 per cent cheaper than last year, domestic spending has become the driver of economic growth and exporters are shifting their attention from slowing emerging markets to recovering developed nations.

"Germany has grown slightly above potential in 2015 for the second year in a row," said Joerg Zeuner, chief economist at Germany's state-owned development bank KFW.

While the outlook for 2016 is favourable, with consumption set to contribute the "lion's share" to growth, concerns about China "illustrate where the relevant economics risks lie: primarily in the external environment," he said.

China has turned from a powerhouse for regional and global growth into a risk for trade as the $10 trillion economy tries to rebalance from investment to services and consumption.

A stock selloff and depreciating yuan has roiled global financial markets, raising concern that the world’s second-biggest economy is headed for a slump.

While the Berlin-based BGA trade group warned last week that a "hard landing" in China would push Germany into a recession, the Bundesbank has expressed greater confidence.

The central bank predicts German GDP will increase 1.8 per cent this year and 1.7 per cent in 2017.

Domestic Demand

Private consumption rose 1.9 per cent in 2015 from 0.9 per cent last year, the statistics office said. That’s the most since 2000.

Government-spending growth accelerated to 2.8 per cent from 1.7 per cent, expanding at the fastest pace since the 2009 recession.

Domestic demand added 1.5 percentage points to GDP. Exports rose 5.4 per cent while imports were up 5.7 per cent.

The government had a fiscal surplus of 0.5 per cent of GDP last year.

"Concerns over China are somewhat overblown," said Andreas Rees, chief German economist at UniCredit Bank in Frankfurt.

“It will have a damping effect on exports but it will not challenge the outlook for the recovery. And higher demand from elsewhere, chiefly the US and the euro zone, will offset this decline.”

Growth in the euro area is gradually strengthening as loose monetary policy reaches companies and consumers.

The ECB increased its quantitative-easing program in December to at least €1.5 trillion ($1.6 trillion) and cut one of its key interest rates further below zero, with President Mario Draghi saying the decisions will reinforce the recovery and strengthen the region's resilience.

The International Monetary Fund (IMF) predicts global growth slowed to 3.1 per cent last year from 3.4 per cent in 2014.

It forecasts world output will rise 3.6 per cent this year. Growth in advanced economies will accelerate, while emerging Asia will slow, the IMF said in its October outlook.

In the euro area, the Washington-based lender sees GDP rising 1.6 per cent in 2016 after 1.5 per cent last year.

"German companies went through a year that dealt them a lot of uncertainty," said Jens Kramer, an economist at NordLB in Hanover.

“They learned that the German economic machine can run smoothly even when there’s turbulence around, and that they can be confident in domestic demand driving growth, also this year. That said, risks have increased.”

- Bloomberg