German GDP powers ahead

Strong household spending, rising state expenditure and higher company investments have consolidated Germany’s role as the eurozone growth engine in the second quarter, although accelerating imports meant growth came in just below expectations.

The data, coming less than six weeks before a federal election in which chancellor Angela Merkel seeks to win a fourth term, underlines the continued strength of the German economy compared with its peers.

The Italian economy is on the mend with industrial production, exports, employment and business confidence rising but with expected annual growth of 1.2% in 2017 and 1% in each of the two following years, it will remain below the pre-crisis level of a decade ago.

Germany’s GDP rose by 0.6% on the quarter, marking a 12th consecutive quarter of growth.

“The German economy is proving its staying power, the upswing continues”, Bankhaus Lampe economist Alexander Krueger said, adding that the ECB’s low- interest rates were boosting the economy.

Germany’s statistics office said growth in the April-June period was mainly driven by domestic demand as households and state authorities increased their spending and companies boosted investment in buildings and equipment.

However, overall growth was dampened by net foreign trade since exports rose less strongly than imports, which the vibrant domestic economy sucked in at a higher rate. “Germany’s economic success story goes on and on and on,” ING Bank analyst Carsten Brzeski said, adding there was very little reason to fear a sudden end to the current performance.

However, he cautioned that the main drivers supporting the domestic economy, such as rising employment, rising wages and increased government spending, could lose some momentum.

“The same holds for the export sector, where a stronger euro, weaker-than-expected US growth and Brexit uncertainty could take some wind out of the sails without bringing exports to a halt,” said Mr Brzeski.

The French economy, the second-largest in the eurozone, expanded 0.5% in the second quarter, helped by stronger exports, according to preliminary data.

The Spanish economy keeps powering ahead, however, with a growth rate of 0.9% in the April-June quarter. This was well above the eurozone average of 0.6%. Outside the eurozone, the UK’s economic output grew by 0.3% on the quarter.
n Reuters and Bloomberg

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