Germany bounces back to lead eurozone out of recession

14th August 2013, Comments 0 comments

The German economy, Europe's biggest, saw a strong rebound in the second quarter, promising to lead the troubled eurozone out of recession, official data showed on Wednesday.

German gross domestic product (GDP) expanded by 0.7 percent quarter-on-quarter in the period from April to June after stagnating in the preceding three months, the federal statistics office Destatis calculated in a statement.

That was fractionally better than expected: analysts had been pencilling in growth of around 0.5 percent for the second quarter.

Germany has fared much better than its eurozone partners throughout the crisis thanks to deep structural reforms pushed through a number of years ago.

Nevertheless, it has not been able to escape the downturn completely and the German economy actually contracted at the end of last year and saw zero growth in the first quarter, not least as a result of the unusually long and cold winter.

However, the government and the central bank, the Bundesbank, have insisted that robust domestic demand would put the economy back on the road to recovery this year and the second-quarter data confirmed this.

Destatis said that growth was indeed driven primarily by domestic demand, with consumer spending and public expenditure both on the rise.

Investment was also up on the previous quarter and another contributing factor was the catch-up effect from the winter.

Foreign trade similarly gave the data a boost with exports rising faster than imports.

"The economic upturn is continuing," said Economy Minister Philipp Roesler in a statement.

"People in Germany have every reason to look to the future with optimisim. We've overcome the weakness we experienced in the winter months. And second-quarter GDP was much better than most experts had been expecting," Roesler said.

Natixis economist Johannes Gareis, who had been pencilling in growth of 0.6 percent for the second quarter, said he felt Germany's second-quarter performance to be "rather unspectacular."

However, the good news was that "private consumption contributed -- once again -- significantly to GDP growth" and this was a sign that the German economy "can count on domestic demand as a driver of overall growth for the rest of this year," Gareis said.

"Moreover, the fact that external demand also managed to contribute positively to GDP growth signals that the German export sector is more robust to sluggish global demand than it is broadly believed," the expert said.

Commerzbank economist Joerg Kraemer said that while he expected growth to moderate to 0.2-0.3 percent in the second half of the year, he had decided to upgrade his full-year forecast from 0.2 percent to 0.4 percent on the back on the second-quarter data.

UniCredit economist Alexander Koch said the German economy "staged an impressive comeback in the spring."

"The resilient labour market situation and higher wage increases also deliver ongoing tailwinds for private spending," he said.

And an imminent recovery in foreign demand "should translate into a further improvement of export dynamics in the second half, driven by sales to non-eurozone countries, but also supported by the observable stabilisation in eurozone demand," Koch said.

He, too, believed that "after the strong acceleration in German growth dynamics in the spring, we continue to expect somewhat more moderate but still robust growth of on average around 0.5 percent in the second half of this year."

© 2013 AFP

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