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Germany on track for record-breaking growth streak, say analysts

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Germany on track for record-breaking growth streak, say analysts
A worker in a factory in Baden-Württemberg. Photo: DPA
12:01 CEST+02:00
The German economy expanded sharply in the first three months of 2017, official data showed Friday, putting Europe's powerhouse on track to beat a late-1970s record for its longest-ever recovery.

Germany's gross domestic product (GDP) grew 0.6 percent in the first quarter compared with the previous three months, adjusted for price, seasonal and calendar effects, federal statistics authority Destatis said.

That was in line with forecasts from analysts surveyed by data company Factset.

"The German economy is in the run-up to the longest (but not strongest) recovery phase" since the 1970s, said UniCredit analyst Andreas Rees.

The German economy has so far expanded in 15 of the past 16 quarters - well within reach of a previous record run of 18 out of 19 quarters of growth between the mid-1970s and early 1980.

At the moment, growth in Germany has been picking up again after a slump last summer following Britain's shock vote to quit the European Union.

Fear that trade barriers could spring up with Britain, one of Europe's largest economies and a key trading partner for Germany, meant that Brexit sapped the confidence of businesspeople, investors and consumers alike.

The economy expanded by just 0.2 percent in July to September, well short of the pace achieved in the first half of the year.

But with no immediate concrete impact from the referendum result, improving morale and strong fundamentals brought growth back to 0.4 percent between October and December.

'Never-ending success'

"Germany's economic performance is a never-ending success story," commented analyst Carsten Brzeski of ING Diba bank.

High levels of employment, rising wages and low interest rates have all boosted consumer spending, while government spending has increased following the refugee influx of 2015-16, he said.

Meanwhile, a weak euro makes German exports more price competitive.

"There are no signs that this recovery could come to an abrupt halt," Brzeski said, adding that structural reforms and increased public and private investment would be needed to boost the economy still further.

Using a year-on-year comparison, GDP expanded by 1.7 percent from the first quarter of 2016, adjusted for calendar effects, Destatis said.

That was roughly the same growth rate as in the third and fourth quarters of 2016.

Looking ahead, Germany could surprise observers with even faster growth over the rest of the year, said analyst Florian Hense of Berenberg bank.

"Political uncertainties are either out of the way or have receded further," he pointed out, after anti-EU parties in France and the Netherlands failed to take power at recent elections.

Across the Atlantic, President Donald Trump has yet to impose protectionist measures against imports into the United States or target alleged "currency manipulators" - which he has accused Germany and China of being - as he promised during his "America First" election campaign.

Continued growth in wages and increased investments by businesses that feel confident about the future have the potential to drive the economy even faster, Hense said.

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