German economy powers up as Italy’s debt pile grows

Germany’s economy more than doubled its expansion rate in the first quarter as spending picked up, cementing its role as the growth engine for the region, while Italy’s economy expanded in the first quarter but still posted a record high government debt.

Sat, 14 May, 2016 - 01:00

Showing the effects of high-powered monetary stimulus appear to be gaining traction, the eurozone’s dominant economy grew 0.7%, its strongest quarterly rate since an identical reading in the first quarter of 2014 as higher state and household expenditure more than offset a dip in foreign trade, the Federal Statistics Office said yesterday.

Separate national GDP data published yesterday showed that quarterly growth accelerated to 0.3% in Italy and to 0.5% in the Netherlands.

In Italy, government debt hit a record-high €2.23trn in March. Its debt-to-GDP ratio is the second-highest in the eurozone after Greece.

“We need to stress that Italy is lagging behind other eurozone economies, in particular France and Germany which beat estimates, and Spain which confirmed strong growth despite the political uncertainty,” said Mirco Bulega, economist at Edmond de Rothschild.

For the German economy, consumption has overtaken trade as the key growth driver, with record-low unemployment, low interest rates and higher wages pushing households to spend more.

A two-stage wage increase of 4.8% over 21 months agreed by trade unions, should further boost consumption.

“It is likely that higher public expenditure contributed to growth in a number of countries, in some cases lifted by spending to deal with the influx of refugees, which was true of Germany,” Howard Archer, chief European economist at IHS, said of Eurostat data.