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ECONOMY

German economy grows faster than expected

UPDATE: Growth of the German economy, Europe's biggest, picked up fractionally at the end of last year, propelled by buoyant exports, official data showed on Friday.

German economy grows faster than expected
Exports gave Germany's economy a surprise boost in the final quarter of 2013. Photo: DPA

German gross domestic product (GDP) grew by 0.4 percent in the period from October to December, slightly faster than analysts' expectations and also up from growth of 0.3 percent in the preceding three months, the federal statistics office Destatis said.

"Positive impulses came primarily from net foreign trade," Destatis explained.

"According to preliminary calculations, exports grew much more strongly than imports. By contrast, the signals from domestic demand were more mixed," the statisticians said.
 
   
Public spending stagnated and consumer spending was down slightly, but positive developments were seen in investment.
 
Investment in both construction and equipment was up strongly, but companies also sharply reduced their stockpiles "and that put the brakes on growth," Destatis said.
 
Analysts were cheered by the better-than-expected data.
   

The numbers were "a positive surprise," said ING DiBa economist Carsten Brzeski, asking whether the German economy was "finally picking up".
   
"Recent monthly data had painted a rather confusing picture with strong soft data but disappointing hard data," the expert said.
   
"Today's growth outcome is actually better than monthly hard data had suggested.
   
"Looking ahead, the German economy should gain further momentum. Filled order books and the latest inventory reductions bode well for industrial production in the coming months. 
 
"Moreover, the construction sector, driven by the mild winter weather and government investment, should be growth-supportive throughout 2014," Brzeski said.
   
"Germany remains the economic stronghold of the eurozone. In fact, this morning's data was one of those positive surprises the eurozone has seen too seldom over the last few quarters. Let's hope it won't be the last one," he said.
   
Newedge Strategy analyst Annalisa Piazza was also upbeat, even if she found the GDP data "a bit of a mixed bag".
   
"Prospects for the future remains relatively bright and we expect activity to continue to improve at a moderate pace going forward," she said.
   
Investment is key
   
Berenberg Bank economist Christian Schulz said exports likely received a boost from the strengthening global recovery, particularly in the US and Britain and stabilizing demand in the euro area.
   
"But since exports are unlikely to remain a reliable growth driver in 2014 due to potentially stronger import growth and the likely wobbles in some emerging markets, the strength in investment is of key significance," Schulz said.
   
"With uncertainty receding companies are beginning to use the cash reserves built up during the crisis to exploit their strong competitive position and invest."
   
Schulz said he found the disappointing drop in household spending puzzling, "given how strong the fundamental position of households is, with low unemployment, low inflation, rising wages and consumer confidence reflecting receding uncertainty.
   
"We do expect consumption to continue to make moderate positive growth contributions in 2014, but investment is the key factor behind our optimistic forecast of 2.2 percent growth in 2014," Schulz said.

 
Taking 2013 as a whole, Destatis confirmed a preliminary estimate from last month which showed that German growth slowed to just 0.4 percent last year, the slowest growth for four years.
 

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ECONOMY

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.

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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.

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