Friday 24 November 2017

Economy on a high as spending increases to meet demand

Jeff Black

THE German economy is in a very different place to its Irish counterpart these days.

Companies have boosted spending to meet increased export demand in the first quarter, while construction rebounded from a slump in the previous three months, fuelling the fastest economic growth in almost a year.

Construction spending jumped 6.2pc in the first quarter, according to the Federal Statistics Office in Wiesbaden.

Exports rose 2.3pc after increasing 1.8pc in the fourth quarter. Gross domestic product increased 1.5pc when adjusted for seasonal swings.

Germany's economy is powering euro-region growth as companies boost output and hiring to meet orders, encouraging consumer spending.

BMW, the world's largest maker of luxury vehicles, is among companies reporting record earnings and Bundesbank President Jens Weidmann said last month that the economy was in a "good" shape overall.

"Exports and, in particular, investments are pretty impressive," said Ralph Solveen, head of economic research at Commerzbank in Frankfurt. He predicted the German economy this year may grow almost as much as in 2010 -- the year of greatest expansion since reunification two decades ago.

German consumer spending rose 0.4pc in the first quarter from the previous three months, when it increased 0.6pc.

Companies' equipment spending advanced 4.2pc and imports rose 1.5pc. Gross fixed capital investment advanced 5pc after falling 0.1pc.

German GDP rose 5.2pc from a year earlier when adjusted for inflation, said the statistics office.

The German economy may expand by 2.6pc this year, after record growth of 3.6pc in 2010, the European Commission said on May 13. In the 17-member euro region, GDP will increase 1.6pc this year, with Greece and Portugal contracting.

BMW in the first quarter earned more money per car than any time in its 95-year history. German rival Volkswagen AG plans to add factories to ensure "profitable growth" at Europe's biggest car maker in coming years, chief executive Martin Winterkorn said early last month.

Tougher budget cuts in periphery states, increasing concern that Greece may be forced into a debt restructuring, and surging energy costs are clouding the region's growth outlook.

Not everybody is optimistic. The Bundesbank said in its monthly report that "growth is likely to ease somewhat in the foreseeable future" after an "explosive" start in 2011. Output growth "was clearly lifted during the reporting period by backloading and catching-up effects", said the central bank.

The bank's governor said it was important to prevent stronger growth and rising commodity costs from stoking second-round effects by feeding into wage demands.

"The big picture on inflation is that we will see an increasing passing-on of commodity prices to consumers," said Andreas Rees, chief economist at UniCredito Group in Munich. At the same time, "the upswing is broadening and that will continue this year and probably next."

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