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Economy on song as govt boosts surplus

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Economy on song as govt boosts surplus
German coffers are in the black. Photo: DPA
08:56 CEST+02:00
The German economy, Europe's biggest, stands rock solid in the current stormy global economic seas, with growth picking up, confidence on the rise and its public finances firmly in the black, data showed on Tuesday.

While the slowing Chinese economy triggers panic in the world's stock markets and conjures up the spectre of a new global financial crisis, German exports are increasing, consumer spending is rising, and businesses are happier with their current situation than they have been in nearly a year and a half, the data showed.

"The German economy continues to be a rock in turbulent waters," said Hans-Werner Sinn, president of the respected economic think-tank Ifo, which publishes a widely-watched barometer of business confidence every month.

The Ifo index beat analysts' expectations to rise to 108.3 points this month from 108.0 points in July.

In Berlin, French Economy Minister Emmanuel Macron warned that China's faltering growth posed a threat to a recovery in the global economy, and said his government's growth forecast for the current year was now at risk.

But the Ifo barometer showed that German companies are satisfied with their current situation, even if they were marginally less optimistic about the future.

Ifo calculates its headline index on the basis of companies' assessments of the current business environment and the outlook for the next six months.

The sub-index measuring current business rose to its highest level since April 2014, while the outlook sub-index slipped fractionally, the institute said.

In concrete growth terms, German gross domestic product (GDP) expanded by 0.4 percent in the second quarter, up from 0.3 percent in the preceding three months, the federal statistics office Destatis said separately, confirming a flash estimate already released earlier this month.

Public finances show surplus

At the same time, Destatis calculated that Germany's finances were firmly in the black, with the federal, regional, municipal and welfare budgets running up a combined surplus of €21.1 billion in the period from January to June, equivalent to 1.4 percent of GDP.

Germany's public finances "continued to profit from the favourable employment situation and positive growth, as well as moderate spending," Destatis said.

Under EU rules, member states are not allowed to run up budget deficits of more than three percent of overall output.

Turning to growth, Destatis said that foreign trade was the "biggest driver of growth in the second quarter," with exports up 2.2 percent quarter-on-quarter.

On the side of domestic demand, however, the signals were more mixed: while both consumer and public-sector spending increased slightly, investment in plant and equipment declined.

Nevertheless, analysts were cheered by the raft of positive economic data.

"In the midst of financial market turmoil, resulting from the eurozone crisis, a slowdown in China and low commodity prices, today's data remind us that fundamentals in the developed world are improving," said Berenberg Bank economist Kallum Pickering.

"Overall, the Ifo index points to robust conditions and a positive outlook for the Eurozone's largest economy," he said, even if he acknowledged that the data "came in ahead of the current financial market rout."

"But, supported by a strong domestic economy, accommodative monetary policy, cheap oil and the end of the euro crisis, the German economy is well positioned to withstand these shock," Pickering said.

No hard landing

BayernLB economist Stefan Kipar agreed.

"Overall, the business confidence data suggest that the German economy will remain on course in the second half of the year," he said.

"The outside risks remain high given the worries in China and the uncertainty in Greece. But domestic demand will continue to drive the German economy. And since we're not expecting a 'hard landing' in China, German momentum could even pick up in the third quarter," Kipar said.

ING DiBa economist Carsten Brzeski said that "either the ongoing stock market turbulences came simply too late to have an impact on the Ifo survey and will therefore only unfold their full negative impact next month, or German businesses are a bunch of ice-cold realists, sticking to the pure facts.

“In our view, there are many arguments in favour of the latter. And, indeed, the pure facts clearly argue against panic."

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