German economy started 2016 on buoyant footing, says finance ministry

The European Central Bank illuminating the skyline of Frankfurt, Germany.
The European Central Bank illuminating the skyline of Frankfurt, Germany.PHOTO: EPA

BERLIN (REUTERS) - The German economy started 2016 in good shape thanks to industrial output gaining traction and domestic demand providing support as consumers in Europe's largest economy benefit from a stable labour market, the finance ministry said on Monday (March 21).

Germany's industrial sector went through a rough patch in the fourth quarter but the latest data has shown output rising at its fastest rate in more than six years in January, although factory orders fell.

"The German economy has had a buoyant start to the new year," the finance ministry said in its monthly report."Production picked up in January after a weak fourth quarter and domestic demand is providing positive impetus."

The ministry said consumption, which has been a pillar of support for the economy in recent years as the export engine that traditionally powered the economy has weakened, probably made a significant contribution to growth in the first quarter.

Consumers are enjoying record-high employment and rising real wages, while low interest rates and cheaper car fuel increase their purchasing power.

The finance ministry said the effect of migrants on the labour market had so far been "moderate".

But while the domestic picture is rosy, the situation in the export sector is not so bright: The ministry said shipments abroad had been on a downward trend until now and recent data from China showing a sharp drop in exports pointed to the risks coming particularly from abroad.

Exports fell for a second month running in January. "The waning effect of the euro's depreciation could also have dampened exports after it gave extra help to exports to countries outside the euro zone last year," the ministry said.

How German exports fare in future will depend largely on whether the US economy accelerates again and also on whether the euro zone recovery continues, the ministry said.

The government predicts imports will rise faster then exports throughout 2016 as demand from emerging markets weakens while domestic demand is strong - a development which means net foreign trade will probably hinder growth.