German economy surprises with robust Q1 growth

The German economy got off to a stronger-than-expected start to the year, growing 1.5 percent in the first quarter, preliminary data from the Federal Statistics Office showed on Thursday.

German economy surprises with robust Q1 growth
Photo: DPA

“The economic upswing of last year has continued unabated,” the Statistics Office said in a statement, adding that the world’s third largest economy had proven itself “very robust” despite the strong euro dragging on exports and oil prices at record highs.

Economists polled by Thomson Financial News had expected gross domestic product (GDP) in Europe’s largest economy to have expanded by only 0.7 percent. In the fourth quarter it grew 0.3 percent.

Data since the beginning of the year have suggested that the German economy was holding up surprisingly well despite the strength of the euro, rising energy and food prices, the credit crunch and a slowing of the US economy.

Industrial output, for example, grew 2.3 percent in the first quarter, data showed earlier this month, while exports – the motor of the German economy – were up 2.4 percent.

“The result shows that Germany – with painful reforms in previous years – has become stronger and more resilient to external shocks than before,” Bank of America economist Holger Schmieding said.

“For an economy that we had described as the ‘sick man of Europe’ until it started to get its act together again with the Hartz I-IV and other structural reforms five years ago, this is quite an achievement,” Schmieding said.

The contrast with other euro zone countries could not be starker. First quarter from the EU’s Eurostat data agency showed Thursday showed that the French economy grew by a mere 0.6 percent and Spain’s just 0.3 percent.

Germans cannot afford to be too smug, however, with the latest data and sentiment indicators suggesting that Germany cannot escape the global headwinds howling around the global economy for much longer.

German industrial output and exports fell in March, for instance, and the last reading of the closely watched Ifo sentiment index showed a steeper-than-expected decline. The Economy Ministry expects growth for the whole of 2008 of 1.2 percent, while the country’s six leading economic institutes expect 1.4 percent.



German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.