Germany ‘on track for golden decade’ as economy picks up speed

By Andrew McCathie, dpa

Berlin (dpa) – The German economy shifted into a higher gear in the second quarter, defying the global economic and political uncertainty triggered by trade tensions and US President Donald Trump’s America First drive.

Europe’s biggest economy expanded by a stronger-than-forecast 0.5 per cent quarter on quarter in the three months ended June powered ahead by domestic demand, data released on Tuesday by the Federal Statistics Office (Destatis) showed. Analysts had expected a 0.4-per-cent rise in the second quarter.

“Germany remains on track for a golden decade,” said ING Bank economist Carsten Brzeski, noting that the economy has grown in 34 out of the last 37 quarters.

Releasing the data, Destatis also revised up its original estimate for gross domestic product (GDP) in the first three months from 0.3 to 0.4 per cent.

“The German economy continues on a growth path,” Destatis said, with second-quarter GDP boosted by “positive impulses” from the nation’s domestic economy, including increases in both household and state spending. Businesses also stepped up their investments in equipment.

However, trade is likely to have acted as a drag on GDP with the rise in imports outpacing exports, according to the data.

Destatis releases a detailed breakdown of the second-quarter GDP later this month.

The surprisingly strong GDP data is also likely to help shore up Chancellor Angela Merkel’s political authority after she struggled to form a new coalition government following last September’s poor election result.

The GDP figures also underlined Germany’s role as the eurozone’s economic engine, with the European Union’s statistics office Eurostat on Tuesday revising up the 19-member currency bloc’s second-quarter growth.

Instead of an originally estimated 0.3 per cent, Eurostat said the eurozone grew by 0.4 per cent quarter on quarter in the three months ended June.

But overhanging the German and European economic outlook is the deepening economic crisis in Turkey as well as the market volatility triggered by fraught budget talks in Italy.

The Centre for European Economic Research (ZEW) said that on Tuesday its closely watched German investor confidence survey rose more than forecast in August on trade hopes after slumping to its lowest level in nearly six years in July.

Based on a survey of 199 analysts and financial institutions, the ZEW index climbed to minus 13.7 points this month from its July reading of minus 24.7 points. Analysts had forecast a gain to minus 21.3 points.

“The recent agreement in the trade dispute between the EU and the United States has led to a considerable rise in expectations for Germany and also, to a lesser degree, for the eurozone,” said ZEW President Achim Wambach.

European Commission chief Jean-Claude Juncker and Trump agreed last month to temporarily lay aside trade tensions in a bid to resolve differences between the US and the EU.

However, Wambach warned “the economic outlook for Germany is now significantly less favourable than it was six months ago.”

Leading German companies have already forecast weaker profits as a result of the trade war – notably with China – launched by Trump under his America First protectionist banner.

Tuesday’s GDP data showed the German economy expanding by 2 per cent in the second quarter compared with the same period a year earlier. Year-on-year GDP stood at 2.1 per cent in the first quarter.

The German labour market also remained a bright spot.

In the slew of data released by Destatis, the statistical office said that employment in Germany chalked up another rise in the second quarter, growing by 1.4 per cent to 44.8 million compared with the same period a year earlier.

Annual inflation in Germany slipped back to 2 per cent in July from 2 per cent plus in both June and May, Destatis said confirming earlier figures.

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