German economy zips along as trade and spending drive growth

Gross domestic product in Europe’s largest economy increased 0.6% from the third quarter, the Federal Statistics Office in Wiesbaden said on Wednesday. That’s in line with the median estimate in a Bloomberg survey. The economy expanded 2.9% from a year earlier when adjusted for calendar days.

Fourth-quarter growth was driven by a strong increase in exports, with total trade making a positive contribution, according to the report. Government consumption and equipment investment increased, while private spending remained largely unchanged and construction slipped.

The confirmation of Germany’s vibrant economic performance comes a week after the European Commission raised its growth forecasts for the eurozone and said the region’s expansion is more balanced than at any time since the financial crisis.

The 19-nation economy recorded its best performance in a decade in 2017, raising confidence among officials at the European Central Bank that a pickup in inflation will allow them to scale back asset purchases.

Eurostat will update its estimate for fourth-quarter growth in the eurozone at 11:00 in Luxembourg, after the Netherlands, Italy and Portugal release national figures. It reported a 0.6% increase in GDP on January 30.

Strong demand

An engine of growth for the currency bloc’s economy in recent years, Germany is benefiting from rising demand for industrial goods from within the country and abroad, as well as healthy consumption underpinned by steadily declining unemployment. 

Deutz, which makes engines for farming and construction vehicles, flagged an almost 20% increase in engine demand for 2017, and Siemens reported a 14% surge in orders in the October-December period.

The Bundesbank said last month that a slightly slower expansion at the end of the year doesn’t impair the “strong and broad-based economic upturn.” 

Backing that claim, business confidence unexpectedly improved in January despite a continuing political impasse in Berlin. Chancellor Angela Merkel’s coalition pact with initially reluctant Social Democrats has yet to be embraced by the party’s base.

Purchasing managers are similarly optimistic. A gauge of private-sector output rose to the highest level in almost seven years at the start of 2018, with factory-gate prices surging at a record pace.

Wage gains

Metal workers and engineers across Germany won landmark wage deals this month that may see 3.9 million employees getting average annual pay raises of more than 3% for the next two years. 

Bundesbank President Jens Weidmann said last week the agreement confirms inflationary pressures will gradually increase as the upswing continues, strengthening his push to rein in unprecedented monetary support in the eurozone.

“The German economy is running strong, and the fact that growth slowed somewhat doesn’t really matter much,” Andreas Scheuerle, an economist at Dekabank in Frankfurt, said before the report. “Consumption continues to be a pillar of growth, supported by exports and a pickup in investments. As far as Germany is concerned, all lights are green.”