AFP, FRANKFURT:  Robust domestic demand enabled the German economy, Europe’s biggest, to shrug off external headwinds and notch up “solid and continuous growth” at the end of last year, official data showed yesterday.
The federal statistics office Destatis said that Germany’s gross domestic product (GDP) expanded by 0.3 per cent in the period from October to December, the same rate of growth as in the preceding three months. “The economic situation in Germany was characterised by solid and continuous growth in 2015,” Destatis said. The strong German engine offered a rare piece of good news in a week when global markets had been hammered over fears about the health of the world economy.
Following GDP growth of 0.4 per cent in both the first and second quarters, the German economy grew by 0.3 per cent in both the third and fourth quarters. That resulted in expansion of 1.7 per cent across the whole year, the statisticians said, confirming a preliminary estimate released last month. “Positive impulses came primarily from domestic demand,” Destatis said. State spending increased sharply and private household was up modestly. “On top of this, investments also developed positively, with construction investment increasing significantly compared with the third quarter,” the statistics office said. At the same time, foreign trade had a dampening effect on growth due to lower exports, it added.
Defying global turmoil
Analysts were cheered by the latest GDP data.
“Today’s Q4 GDP raises hopes that the German economy is strong enough to defy the turmoil in the global economy and financial markets,” said analysts at Natixis. “We expect that the pace of growth to maintain going into Q1, as the underlying drivers of growth are here to stay,” they said.
Sustained low oil prices and inflation are expected to fuel private consumption, they said, particularly in an economy where wages are rising and unemployment is falling. Public spending on refugees are also expected to provide a boost, they note.
ING DiBa economist Carsten Brzeski acknowledged that the growth rate of 0.3 per cent was slightly lower than expected and was “probably the result of an entire batch of disappointing hard December data.”
Nevertheless, “without any doubt, the performance of the German economy since 2009 has been impressive. In 27 quarters, the economy only shrank three times,” he said.
Moreover, the German economy had moved from being almost totally reliant on exports to much more balanced growth, with domestic factors currently shielding the economy against external headwinds, he noted. Looking ahead, 2016 could be more challenging, Brzeski continued.
The refugee crisis, the economic slowdown in China and other emerging markets low oil prices and the possible weakness of the US economy “could all give the German economy a hard time,” he warned.
Andreas Rees, chief German economist at UniCredit Research, was also cautious, warning that prolonged upheaval in world markets could start to chip away at German growth.
“The longer the turmoil continues, the higher the likelihood of negative feedback effects on the real economy - in Germany and abroad,” he said.
“If there were negative spillover effects from financial markets we think that they will not affect economic activity in Germany already in the first quarter but only from spring onwards,” he warned.