German economy expands in second quarter at faster than forecast rate

The German economy grew at a faster pace than expected during the second quarter after a surprisingly strong performance by exports and a pickup in private consumption.

But at 0.4 per cent, German gross domestic product (GDP) in the three months to the end of June slowed from the first quarter when it grew by 0.7 per cent, the Federal Statistical Office (Destatis) said on Friday.

Analysts had expected Europe's biggest economy to grow by just 0.2 per cent from April to June.

The GDP data "is a positive surprise," said Andreas Rees, chief German economist with Germany's UniCredit.

"The German economy has been steering the course in the second quarter after exceptionally strong growth at the start of the year," he said.

Year on year, working-day adjusted growth slipped to 1.8 per cent in the second quarter from 1.9 per cent in the first three months, Destatis said. The statistics office is to release details of the latest GDP data at the end of the month.

Both private investment and a weak building sector acted as drags on GDP, Destatis said.

However exports' positive contribution to GDP defied concerns that the slowdown in China and other major emerging markets would hit German foreign demand. Government consumption also supported growth.

Building output contracted by 0.5 per cent in June after expanding by 2.1 per cent in January after mild winter weather encouraged companies to boost construction activity in the earlier part of the year, German production data published on Monday showed.

Economists see German growth regaining momentum in the coming months thanks to the strong domestic economy.

Employment grew by 1.2 per cent in the second quarter to 43.5 million compared with a year earlier, Destatis said.

Commerzbank Bank chief economist Joerg Kraemer said on Friday his bank was raising its 2016 growth forecast for the nation.

Instead of a previously estimated 1.5 per cent, the Commerzbank is now forecasting a 1.8-per-cent expansion rate in anticipation Kraemer said of the country's economy repeating its healthy performance during the first six months of the year during the second half.

"The fundamental trend remains quite strong and economic output is expected to significantly increase during the summer quarter," Germany's central bank, the Bundesbank, said in its July monthly bulletin.

"The driving factors of the domestically supported upswing remain intact, including the excellent labour market, rising real wages and an expansionary fiscal policy," it said.

"The continued favourable business and household sentiment suggests a purely temporary breather in the second quarter," the Frankfurt-based central bank said.

The Nuremberg-based GfK market research group said last month it expect real consumer spending to grow by 2 per cent this year after posting a 1.9-per-cent increase in 2015.

Economists also believe that the fallout from Britain's vote in June to leave the European Union will have only a limited impact on German GDP.

"Given the latest rather slight decline in the Ifo (business confidence) index, there is reason to believe that growth-dampening effects caused by Brexit will be moderate," said UniCredit's Rees.

Last update: Fri, 12/08/2016 - 10:15

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