German Economic Growth Fastest Since Reunification

Wednesday, 12 Jan 2011 11:01 AM

 

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Germany's economy rebounded last year at its fastest pace since reunification but consumer spending stayed modest, leaving analysts and other euro zone states hoping a more balanced recovery would take hold this year.

Gross domestic product (GDP) grew by 3.6 percent, preliminary Federal Statistics Office data showed on Wednesday, bouncing back from a 4.7 percent slump — its steepest since World War II — in 2009. The figure matched the mid-range forecast in a Reuters poll of 22 economists.

Economy Minister Rainer Bruederle talked up Germany's performance over the past 12 months saying Europe's dominant economy had grown twice as fast as the average across the region.

Separate data showing industrial output in the euro zone grew twice as fast as expected in November offered a glimmer of hope the rest of the currency bloc might soon catch up.

But a 0.5 percent increase in consumption by German households provided little sign of the strong upturn in consumer spending that struggling economies in the region are hoping for as they look to boost their exports.

STILL REBALANCING

There have been signs in recent months of such a rebalancing in the German economy, with a rise in imports helping narrow its trade surplus in November.

But in 2010 overall, the economy relied more for growth on traditionally strong corporate investment.

"(Private) consumption is still relatively weak," said Gerd Hassel from BHF Bank. "Public consumption however rose very strongly because of the fiscal stimulus programs. Investments grew strongly, also for equipment. Germany is on a good path."

Investment in equipment surged 9.4 percent and other investments grew 6.4 percent, the data showed.

But while exports rose 14.2 percent, imports surged 13 percent, and analysts said consumer spending should pick up strongly this year.

"We expect an increase in consumer spending of 2 percent," said Unicredit analyst Andreas Rees. "In the first quarter the economy should finally reach its pre-crisis output level and finally have overcome all effects (of the slump)."

Christoph Schmidt, one of the "wise men" who advise the government on economic policy, said higher domestic consumption should allow the economy to continue expanding in coming years despite fiscal consolidation and lackluster export growth.

DEFICIT UNDER CONTROL

The public sector deficit came in at 3.5 percent of GDP, a touch higher than expected and compared to 3 percent in 2009.

"Less than a year ago, the German government still expected a 2010 deficit of 5.5 percent of GDP. Today's outcome is a good illustration of the importance of economic growth for public finances," said Carsten Brzeski of ING.

"With the announced austerity measures and strong economic growth, the deficit should drop below the 3 percent (EU) threshold already this year."

The statistics office said most of the rebound had occurred in the first two quarters of 2010. For October to December it estimated quarterly growth of 0.5 percent, having revised the figure downwards due to harsh winter weather.

Economists did not expect that to rob Germany of its momentum, forecasting GDP growth close to 2 percent this year.

"After a possible setback at the end of last year due to the harsh winter, the economy should pick up speed again in the first half," Brzeski said.

The rebound and a healthy labor market may give Chancellor Angela Merkel a chance to re-energize her flagging second term in office and help her to push through reforms, giving her and her Free Democrats (FDP) allies a much-needed boost in polls.

But sounding a note of caution, Heiner Flassbeck, chief economist of the United Nations Conference on Trade and Development (UNCTAD), said German growth was still fragile.

"As a whole, Germany's economy this year was more than fragile and it is irresponsible for the state to bank stubbornly on savings," he wrote in a guest column for Reuters in German. "Should the continuation of the export boom not happen, there will be crying and gnashing of teeth."

Germany's firms are benefiting from the pickup and expect it to continue. Of the 30 blue-chip DAX companies that have reported earnings for the quarter to end-September, 22 beat market forecasts while 15 hiked their outlooks and six kept them unchanged.

Siemens, Europe's biggest engineering conglomerate, said this week its first-quarter profit and sales were set to surpass the year-earlier figures, thanks to robust demand.

© 2014 Thomson/Reuters. All rights reserved.

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