Demand drives German economy

Domestic demand drove the strongest German quarterly expansion in more than a year between April and June, fuelling optimism Europe’s largest economy will outperform in 2013 and support the eurozone recovery.

Details, released yesterday, showed a construction flurry after the harsh winter. Firms’ strong appetite for equipment and healthy private consumption all underpinned a 0.7% quarterly rise in GDP.

Analysts said Germany’s bounce-back could prompt upwards revisions to 2013 growth forecasts and support the tentative recovery in the eurozone economy, which returned to growth in the second quarter after 18 months of contraction.

“The composition of the growth is very good. It is being driven more strongly from within, which is good for Germany and the eurozone,” said economist Holger Sandte at Nordea. “It is also positive that firms are investing more in equipment and are not so hesitant anymore.”

The data also confirmed an earlier flash estimate showing Germany’s GDP was up 0.9% on the year in the second quarter.

Domestic demand added 0.5 percentage points to GDP in the quarter and foreign trade 0.2 percentage points.

“Growth is broadly supported — two-thirds comes from domestic demand, a third from trade... This could be the start of a long upturn for investment. Low interest rates and returning confidence provide a sound basis for this,” said Christian Schulz at Berenberg Bank.

The strong second-quarter growth data will be welcome news for chancellor Angela Merkel as she seeks a third term in the vote on Sept 22.

Her government expects GDP growth of 0.5% in 2013, but finance minister Wolfgang Schaeuble said the year’s growth could end up as high as 0.7%.