SHARE
COPY LINK

ECONOMY

German economy growing even faster than predicted

The German economy grew at a faster pace than expected in the third quarter, official data showed Tuesday, as robust foreign demand kept Europe's top economy humming.

German economy growing even faster than predicted
Photo: DPA

Gross domestic product (GDP) expanded by 0.8 percent between July and September compared with the previous quarter, adjusted for seasonal swings, the statistics office Destatis said in a statement.

“German economic growth continues at a high rate,” it said.

The preliminary figure beat expectations, as analysts surveyed by Factset had forecast 0.6 percent growth.

“Exports were stronger than imports in the third quarter. As a result, net exports had a positive impact on the GDP compared to the previous quarter,” according to Destatis.

Healthy government and consumer spending “remained rather stable” in the third quarter, it added, while noting that investments had increased, particularly “in machinery and equipment”.

Destatis also revised upwards its first-quarter figure, saying the German economy accelerated by 0.9 percent in the first three months of 2017 instead of the earlier reported 0.7 percent.

Second-quarter growth was confirmed at 0.6 percent.

“Germany's economic success story goes on and on and on,” said economist Carsten Brzeski of ING Diba bank.

He said he saw little reason to expect a sudden end to the country's “golden cycle”, given the low interest rate environment, the strong labour market and the expectation that the incoming German government would boost spending.

The German economy ministry last month sharply upgraded its full-year growth forecast to 2.0 percent, up from 1.5 percent previously.

For 2018, it is pencilling in growth of 1.9 percent.

Europe's largest economy has in recent years been powered by domestic demand, helped by record-low unemployment, low inflation and an influx of migrants in 2015.

But the economy ministry expects domestic consumption to slow down in coming years, while buoyant foreign demand for “made in Germany” goods is once again expected to become the main driver of growth.

Exports are forecast to rise by 3.5 percent this year and 4.0 percent in 2018, according to the ministry.

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.

READ ALSO:

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.

SHOW COMMENTS