German economy grows fastest since 2011 with budget in surplus

SHAFAQNA – Gross domestic product (GDP) rose 1.5%, compared with a 0.1% gain in 2013, the Federal Statistics Office said in Berlin on Thursday. That matched the median of 26 estimates in a Bloomberg News survey. The economy expanded about a quarter of a percent in the three months through December, the office said. At €11.9 billion ($13.9 billion), the government’s budget surplus was 0.4% of GDP, the second highest since German reunification in 1990.

Germany, Europe’s largest economy, is relying on domestic demand bolstered by record-low unemployment to fuel a recovery after it flirted with recession in the middle of the year. The government has insisted on keeping its budget close to balance even as other countries in the euro area call for more fiscal stimulus.

“We expect the German economy to gradually pick up speed throughout 2015,” said Christian Schulz, senior economist at Berenberg Bank in London. “For most other struggling euro-zone countries, Germany’s example shows that the path toward fiscal health ultimately depends much more on labour market reforms to get people back to work than on spending cuts and tax increases.”

Oil prices have plunged to the weakest since 2009, potentially providing an economic boost to the region. The euro dropped on Thursday to the weakest against the dollar since 2003 after the Swiss National Bank unexpectedly gave up its minimum exchange rate.

Quantitative easing

More stimulus may yet come as the European Central Bank (ECB) meets on 22 January to consider starting government bond purchases to fend off the threat of deflation in the euro area. Policymakers including ECB president Mario Draghihave countered that the drop in crude prices risks entrenching low inflation expectations.

German exports climbed 3.7% last year and imports rose 3.3%, Thursday’s report showed. Private consumption gained 1.1% and government spending increased 1%. Equipment investment advanced 3.7% and construction investment rose 3.4%, after both declined in 2013.

“The German economy turned out to be strong in a difficult global economic environment, benefiting especially from a strong domestic demand,” Roderich Egeler, president of the statistics office said at a press conference in Berlin on Thursday.

Russia effect

German GDP increased just 0.1% in the third quarter as investment declined, and the economy shrank 0.1% in the three months through June. That partly reflects the impact on thousands of companies of European Union sanctions of imposed on Russia because of its involvement in the Ukraine conflict.

Since then, surveys have shown a mixed picture for Germany’s economic health. While a measure of manufacturing and services activity unexpectedly rose in December for the first time in three months, the rate of expansion remained sluggish. Gauges of business and investor confidence have rallied.

“Indicators are quite promising, especially consumption is a strong pillar for the German economy,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “Economic uncertainty has been a drag but prospects are improving. Lower energy prices and the depreciation of the euro help investment.” Bloomberg

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