Exports, consumers and construction drive German growth surge

Germany - Europe's biggest economy - has grown 0.6 per cent quarter on quarter in a boost for German Chancellor Angela Merkel ahead of the September 24 election.
Germany - Europe's biggest economy - has grown 0.6 per cent quarter on quarter in a boost for German Chancellor Angela Merkel ahead of the September 24 election.PHOTO: REUTERS

BERLIN (REUTERS) - The German economy picked up steam in the first quarter helped by strong exports, booming construction and higher household and state spending, burnishing Chancellor Angela Merkel's economic credentials as she gears up for national elections.

Europe's biggest economy grew 0.6 per cent quarter on quarter, up from 0.4 per cent in the final three months of last year, the Federal Statistics Office said on Tuesday, confirming a preliminary reading.

The final figures, continuing a run of solid economic data, show a broad-based upswing - good news for Merkel as she prepares to seek a fourth term in office on Sept. 24.

A poll published on Tuesday showed her conservative CDU/CSU bloc - which has been widening its lead over its Social Democrat rivals - and the pro-business Free Democrats winning enough seats to form a parliamentary majority together. "The economic upswing has become more broad-based," VP Bank economist Thomas Gitzel said. "Hopes are growing that this will become a self-reinforcing boom."

The Statistics Office said exports rose 1.3 per cent and imports edged up 0.4 per cent, meaning net trade added 0.4 percentage points to gross domestic product (GDP) growth.

Investment in construction jumped 2.3 per cent, the strongest increase in three years. A growing population, increased job security and record-low interest rates are fuelling a property boom in Europe's biggest economy.

Investment in machinery and equipment rose 1.2 per cent, in a sign that companies are looking to expand despite political risks clouding the growth outlook.

German consumers are meanwhile benefiting from record-high employment, rising real wages and low borrowing costs, with rising household spending adding 0.2 percentage points to growth.

State spending rose 0.4 per cent, German authorities are spending billions of euros on accommodating and integrating more than one million refugees who have arrived since the start of 2015, many from war zones such as Syria and Iraq.

A change in inventories subtracted 0.4 percentage points from the overall GDP growth rate, the data showed. "Even in its ninth year, the recovery is still going strongly. In fact, the recovery has broadened across all sectors," said ING economist Carsten Brzeski, adding that there were no signs that momentum might be lost any time soon.

While Germany's vibrant domestic economy was reflected in strong construction activity and continued strength in private consumption, private investments finally started to pick up too, he noted.

Even though the German government was trying to counter international criticism of a lack of investment, the discussion on how to further strengthen investments, particularly private sector investments, would clearly continue, he added.