Germany posts fastest growth rate in six years

11th January 2007, Comments 0 comments

11 January 2007, Berlin (dpa) - Germany posted an economic growth rate of 2.5 per cent in 2006, the nation's statistics office said Thursday, as Europe's biggest economy rebounded from a protracted period of stagnation to expand at its fastest pace in six years. Powered by exports and rising corporate investment, the solid 2006 growth rate was in line with analysts' forecasts and more than double the 0.9 per cent expansion rate chalked up by the country in 2005 as the nation re-emerged as Europe's economic

11 January 2007

Berlin (dpa) - Germany posted an economic growth rate of 2.5 per cent in 2006, the nation's statistics office said Thursday, as Europe's biggest economy rebounded from a protracted period of stagnation to expand at its fastest pace in six years.

Powered by exports and rising corporate investment, the solid 2006 growth rate was in line with analysts' forecasts and more than double the 0.9 per cent expansion rate chalked up by the country in 2005 as the nation re-emerged as Europe's economic engine.

Underpinned by the pickup in both the economy and tax revenue, Germany's budget deficit also fell to below the strict 3.0 per cent target for euro member states for the first time in five years, the statistics office said.

"The 2006 growth rate was not a flash in the pan," said federal statistics office chief Walter Radermacher said releasing the data. "The long barren period for both private consumption and the building sector appears to be coming to an end."

While exports raced ahead in 2006 by 12.4 per cent and imports jumped by 12.1 per cent, private consumption also picked up, growing by 0.6 per cent as consumers brought forward purchases last year to avoid this month's hefty increase in value-added tax.

Reflecting the current strength and competitiveness of the nation's corporate sector, company investment in plants and machinery rocketed up by 7.3 per cent last year.

In the meantime, investment in Germany's troubled building sector reported a surprise 3.6 per cent increase in 2006.

However, economists are expecting German economic growth to slip back to well below 2.0 per cent this year as the three-percentage point VAT rise hits private consumption and a slowing global economy along with a firm euro weakens the country's export machine.

At the same time, they believe that moves by Chancellor Angela Merkel's ruling coalition to further clamp down on the deficit through spending cuts as well as the six interest rate hikes delivered by the European Central Bank since December 2005 will also undercut Germany's economic acceleration.

"Although the economy gained breath last year and as a result points to the continuation of the upswing, a weaker growth rate will become apparent in 2007," said Commerzbank economist Matthias Rubisch.

Nevertheless, the latest statistics office figures come in the wake of a batch of hard economic data pointing to a solid finish to the year for Germany with both industrial production and factory orders surging in November and unemployment falling again in December.

Business confidence in the nation hit a 16-year high in December underscoring optimism that the economic momentum built up during 2006 will help Germany to weather any slowdown in the coming months.

Buoyed by burgeoning demand from emerging economies around the world, in particular in Asia, last year's jump in exports helped to drive the nation's trade surplus to a record high in November.

But as a sign of the economic uncertainties ahead, trade data released this week also showed exports edging down 0.5 per cent on a month-on-month basis in November as a strong euro helped to undercut the nation's foreign orders.

At the same time, the statistics office estimated that Germany grew quarter-on-quarter in the last three months of 2006 by 0.5 per cent, its weakest expansion rate for the year.

Thursday's figures showed the budget deficit coming in at 2.0 per cent of the country's gross domestic product.

Germany's failure to meet the so-called Maastricht budget deficit rules over five consecutive years had been particularly embarrassing for the country as it had spearheaded the efforts in the run-up to the euro's launch to impose the tough fiscal restrictions on the currency's member states.

This was aimed at helping to underpin the new common currency's credibility both in the financial markets and among the population.

The German government is expecting the budget deficit to drop further to 1.5 per cent this year also on the back of the economy's solid performance and the increase in tax revenue.

DPA

Subject: German news

0 Comments To This Article