Monday 25 September 2017

Germany’s economic growth slows from record pace

German economic growth slowed in the third quarter, after record expansion in the second, as the cooling global recovery crimped export demand.

Gross domestic product, adjusted for seasonal effects, rose 0.7pc from the second quarter, when it surged an upwardly revised 2.3pc, the Federal Statistics Office in Wiesbaden said today.

Economists predicted the economy would expand 0.8pc, the median of 37 estimates in a Bloomberg News survey shows. Separately, France said GDP rose 0.4pc in the third quarter after a 0.7pc gain in the second.

Germany is driving growth in the 16-nation euro area as debt-strapped countries such as Ireland, Portugal and Greece grapple with a loss of investor confidence in their ability to finance themselves.

Germany’s economy, Europe’s largest, will expand 3.7pc this year, the government’s council of economic advisors forecast this week. That would be the fastest growth since 1991.

“This is an incredible number for Germany,” Andreas Scheuerle, an economist at Dekabank in Frankfurt, said of the third-quarter report. “Consumption has picked up, investment is strong. What else do you want? We’re expanding at high speed and twice our potential.”

Growth also exceeded the expectations of Bundesbank President Axel Weber, who said on October 25 the economy would expand about 0.5pc in the third quarter. The euro was little changed after today’s data, trading at $1.3637 at 9:48am in Frankfurt.

Government spending

The statistics office said trade and investment as well as household and government spending all contributed to growth in the third quarter. From a year earlier, GDP increased 3.9pc. Second-quarter growth was revised from 2.2pc.

“Some might label today’s growth rate as a slowdown, in our view ‘normalisation’ suits better,” said Carsten Brzeski, an economist at ING in Brussels. “The impressive second-quarter performance was a one-off and will not be repeated any time soon.”

Euro-area growth probably slowed to 0.5pc in the third quarter from 1pc in the second, according to another Bloomberg survey of economists. Eurostat, the European Union’s statistics arm in Luxembourg, will publish that data at 11am.

The Austrian economy expanded 0.9pc in the third quarter after growth of 1.2pc in the second. Italy’s expansion slowed to 0.2pc from 0.5pc and the Netherlands’ economy contracted 0.1pc following growth of 0.9pc in the prior quarter.

Widening gaps

The region’s sovereign debt crisis is widening the gaps between its members. Greece’s economy probably shrank 4.3pc in the third quarter, its seventh quarterly contraction, and Portugal’s GDP may drop 0.1pc, economist surveys show.

That may force the European Central Bank to leave stimulus measures and record-low interest rates in place longer than necessary for Germany, where falling unemployment is boosting prospects for consumer spending.

“If you look at growth, the labour market and government finances in Germany, these all suggest it would normally soon need a rate hike,” said Aline Schuiling, an economist at ABN Amro Bank in Amsterdam.

“But of course the ECB can’t separate it from the rest of the euro zone. The government might need to do more fiscal tightening if they want to prevent the economy from overheating.”

Germany’s Siemens, Europe’s largest engineering company, yesterday announced a bigger-than-estimated increase to its dividend for 2010.

‘Full momentum’

“We’re coming out of the economic downturn with full momentum,” Siemens Chief Executive Officer Peter Loescher said. “Our growth is gaining speed. We expect to take this positive momentum into the next fiscal year.”

Bayerische Motoren Werke, the world’s top maker of luxury vehicles, raised its 2010 forecast after reporting an 11- fold jump in third-quarter profit.

Bilfinger Berger, Germany’s second-largest construction company, has lifted its outlook for 2010, and luxury clothier Hugo Boss reported a 79pc jump in third-quarter profit.

The cooling global economy and a stronger euro may damp exports. The International Monetary Fund forecasts global growth will slow to 4.2pc next year from 4.8pc this year.

In China, economic expansion eased in the three months through September, and the US Federal Reserve is buying an additional $600bn of Treasuries to bolster its ailing economy.

That’s helped the euro advance 14pc against the dollar since early June, threatening export price competitiveness outside the euro region.

Within the currency zone, Germany’s biggest export market, governments are cutting spending and raising taxes to push down budget deficits.

Still, Germany has become “less dependent on exports and, encouragingly, more reliant on domestic demand,” said Alexander Koch, an economist at Unicredit in Munich. “Investment activity will pick up further. Above all, consumer expenditure has risen markedly.”

Bloomberg

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