Spending on migrants helps boost German first-quarter growth

A surge in government spending to support the influx of migrants to Germany over the last year was one of the main drivers in first-quarter economic growth, Germany's statistics agency reported Friday.

Other drivers that pushed Germany's gross domestic product (GDP) to grow 0.7 per cent quarter-on-quarter included strong consumer demand and a mild winter, which helped builders record gains.

It was a strong boost over GDP growth in the fourth quarter of 2015, which came in at 0.3 per cent.

Year-on-year data also showed strong growth, with the first quarter registering 1.3-per-cent growth on the same period last year. The figure was 1.6 per cent when seasonally adjusted.

Commerzbank called the figure a surprise. Indeed, it said it was enough of a game-changer that it changed its economic growth forecast for 2016 from 1.3 per cent to 1.5 per cent.

However, it noted that there were reasons to believe that the second quarter would fall short of the first quarter's growth rate.

A lot of the focus for the strong figures was on consumption. Unemployment rates are low, meaning more people have some disposable income. Additionally, low inflation means they are not losing purchasing power.

Indeed, separate data from the statistics agency showed that Germany's inflation rate for April dropped 0.1 per cent from March. The figure confirmed earlier estimates.

At the same time, low interest rates mean people are not tempted to save, leaving them little to do with their money but spend it. Analysts said consumption would continue to be a strong driver.

The statistics agency noted that the economy was also buoyed by businesses investing in new equipment but that trade had been a drag on the economy, since the country imported more than it exported.

Analysts said they expected little improvement on the export front, since key markets like China, Russia and Brazil are all experiencing weakness. On top of that, the euro is gaining in strength, hurting German competitiveness.

Last update: Fri, 13/05/2016 - 13:55

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