German Economic Growth at End of 2016 Probably Beat Forecast (1)

Jan 12, 2017 7:41 am ET

(Bloomberg) -- Germany’s economic expansion last quarter may have accelerated more than analysts predicted as 2016 growth climbed to the fastest pace in five years.

Gross domestic product expanded about half a percent in the October-December period from the previous three months, when it grew 0.2 percent, according to the Federal Statistics Office. Economists forecast an increase of 0.4 percent, forecasts compiled by Bloomberg show. GDP rose 1.9 percent in 2016, beating a 1.8 percent median estimate.

The statistics office will release fourth-quarter data on Feb. 14.

Germany, the euro area’s growth engine, is the first of the world’s biggest developed economies to provide 2016 data. The Bundesbank said in December that GDP probably expanded at a “significantly faster pace” at the end of the year -- a projection underpinned by a recent reports on rising employment and improving business sentiment. The country has also benefited from the European Central Bank’s monetary stimulus, which President Mario Draghi said last month will be prolonged through at least the end of this year.

“The general picture is that we’re seeing a consumption-driven upswing in Germany, which is going to stay in place as long as the ECB continues its expansionary monetary policy,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “On top of that, we also saw some positive contribution from demand from outside the euro area at the turn of the year, which we should still see in the first quarter, before it will likely weaken during the year.”

Commerzbank raised its forecast for German GDP after the release and now expects the economy to expand 1.6 percent in 2017 instead of the 1.3 percent it saw previously.

The statistics office estimates that the carryover of growth from 2016 into this year was around half a percent. That’s the rate of expansion the economy would register for 2017 if GDP stagnated in each of the four quarters.

Consumer spending rose 2 percent last year and public expenditure increased 4.2 percent, the statistics office said at a press conference on Thursday in Berlin. Investment was up 1.7 percent and construction gained 3.1 percent. Exports grew 2.5 percent, with imports 3.4 percent higher than in 2015.

Domestic Consumption

Household consumption benefited from a drop in the unemployment rate to the lowest level since the country’s reunification more than a quarter of a century ago. At the same time, government spending was boosted by costs related to the provision of assistance and shelter for more than 1 million refugees that came to the country from war-torn nations including Syria and Iraq.

Despite these increased outlays, the government posted a fiscal surplus of 0.6 percent of GDP last year, the third consecutive year that budget revenue exceeded spending.

Separately, Eurostat said industrial production in the euro-area rose 1.5 percent in November from a month earlier, its second consecutive increase.

Political Uncertainty

In the coming months, consumer spending in Germany may come under pressure as inflation rates rise. Prices are already increasing at the fastest pace in more than three years. 

While more than 90 percent of German companies currently don’t see “strong effects” on them from Brexit, general elections in the fall, which will pit the ruling party of Chancellor Angela Merkel against a strengthening populist movement, are adding to uncertainty.

“The German economy was the central pillar of the recovery in the single-currency region once again in 2016,” said Stefan Kipar, an economist at Bayerische Landesbank in Munich. “For 2017, we expect a continuation of the upswing, even though momentum should be damped somewhat by high political uncertainty.”

(Updates with economist comment in fifth paragraph.)

--With assistance from Kristian Siedenburg Andre Tartar and Zoe Schneeweiss To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net. To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow, Zoe Schneeweiss

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