German economy fared well in Q1 as trade surplus grows

Booming exports pushed Germany’s trade surplus up to an all-time high in March, but industrial output contracted, pointing to possible problems ahead for Europe’s biggest economy, official data showed on Tuesday.

The trade surplus is a key gauge of an economy’s comparative strength and in recent months has highlighted the robustness of Europe’s biggest economy amid the current global economic uncertainties.

It topped a new all-time monthly high in March on the back of buoyant exports, according to data published by the federal statistics office Destatis.

And analysts said the data suggested that the German economy notched up solid growth as a whole in the first quarter.

Nevertheless, industrial output contracted in March, falling by a steeper-than-expected 1.3 percent, possibly indicating some clouds on the horizon.

German exports grew by 1.9 percent to 101.3 billion euros ($115 billion) in seasonally-adjusted terms in March, Destatis said.

At the same time, imports — a measure of domestic demand — decreased by 2.3 percent to 77.6 billion euros.

That meant that the trade surplus — the balance between exports and imports — expanded sharply to 23.7 billion euros in March from 20 billion euros in February, the statisticians calculated.

Destatis is scheduled to publish a preliminary estimate for gross domestic product (GDP) growth in the first quarter on Friday.

Economists were confident that growth would be satisfactory.

“Economically speaking, the first quarter was positive for Germany in the first quarter,” said BayernLB economist Stefan Kipar.

“Strong output at the start of the year made a substantial contribution to this, even if the monthly data suggest that it won’t be able to sustain the strong momentum in the second quarter,” the expert said.

Kipar said he is forecasting GDP growth of 0.5 percent for the first quarter.

Commerzbank economist Ralph Solveen said that the early timing of the Easter holidays likely contributed to the sharp drop in industrial output in March.

“In combination with the positive external trade figures, the production data argues for strong economic growth in the first quarter,” Solveen said. “But we already expect a much lower growth rate for the second quarter.”

ING DiBa economist Carsten Brzeski said that “the strong increase in exports shows that the cooling of the global economy cannot have been as severe as some feared at the beginning of the year.”

Nevertheless, the weakness of industrial output was a problem, he said.

“Even if parts of the drop might be due to the timing of the Eastern vacation, the overall trend is not very promising,” Brzeski warned.

While Germany likely notched up “a decent growth performance in the first quarter … under the surface of strong growth numbers a more worrying picture is emerging,” the expert said.

The German government is forecasting growth of 1.7 percent for the whole of this year and 1.5 percent next year, driven largely by robust domestic and consumer demand.