German growth's weak 2018 start 'no more than a black eye'

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Most analysts saw a weaker early-2018 growth reading Tuesday for the German economy as a temporary blip rather than a warning sign, suggesting a rebound could be on the way in coming months.

"All in all, the German economy got away with no more than a black eye," ING Diba bank analyst Carsten Brzeski said.

But investors did not share the confident outlook, with the ZEW institute's monthly barometer of financial players' mood stuck at its worst level since 2012 over fears of trade upsets between the US, China and Europe and higher oil prices.

The German economy expanded by 0.3 percent quarter-on-quarter between January and March, adjusting for price, seasonal and calendar effects, federal statistics authority Destatis said.

That was half the pace of the previous three months, and analysts surveyed by data company Factset had predicted growth of 0.4 percent.

Destatis noted that the 15th consecutive quarter of growth made the present economic upswing "the longest since 1991".

The statisticians highlighted "positive impulses" at home, as firms stepped up investments and households slightly increased consumer spending.

But government spending fell for the first time in almost five years, weighing on growth, while both imports and exports fell back over the quarter.

"The German economy is currently suffering from the strong euro, which has appreciated by nine percent in the past twelve months," Commerzbank analyst Joerg Kraemer commented.

"Based on past experience, we expect the dip in growth to continue until the turn of the year."

Germany's slower first-quarter growth was matched by a slip in eurozone-wide expansion, from 0.7 percent at the end of last year to 0.4 percent as 2018 got under way.

- Signs of a rebound? -

After a sparkling 2017, political upsets and hard economic data have played into the gloomier outlook for Germany.

Less confident observers point to a weak rebound in industrial production in March after metalworkers' February strikes for better conditions and higher pay as evidence of a wider slowdown.

Others argue that the softer start to 2018 was inevitable as Germany suffered through a cold winter and a flu outbreak, while working days were lost to strike actions and the early Easter holiday.

In foreign trade, the euro's strength against the dollar could sap foreign demand for German and other single currency countries' exports.

And US President Donald Trump's calling into question of the global trade order, threatening both China and the European Union, risks dealing a painful blow to the world economy as a whole -- a particular risk for export champion Germany.

Surveys of business, investor and consumer confidence "have weakened lately, suggesting that underlying activity is not as strong as it was last year," Capital Economics analyst Jennifer McKeown pointed out.

That point was reinforced later Tuesday, when the ZEW institute's monthly investor confidence reading showed financial players' mood stuck at its lowest level since November 2012.

But Brzeski argued that "a closer look at the German economy shows promising signs of a rebound in the coming months."

Companies in Germany's key industrial sector are running at close to full capacity, with full order books for the coming months suggesting there will be no let-up in production, while lending data shows companies' thirst for credit to finance their growth remains unslaked.

Shortages of skilled labour and equipment rather than a lack of demand are the biggest limiting factors for German companies at present, he added.

"There are some good reasons to expect German growth to pick up in the rest of this year" such as plans to increase spending on pensions and family benefits under Chancellor Angela Merkel's fourth government, McKeown agreed.

Meanwhile faster growth in some of the country's biggest trading partners should fire demand for its export products once again.

"Renewed strength" in Europe's largest economy should help stiffen the resolve of the European Central Bank to withdraw some of its massive post-crisis stimulus to the eurozone by the end of the year, McKeown predicted.


© 2018 AFP

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