German Q2 growth surges as recovery gains breadth

BERLIN - Surging exports and a return to growth in consumer spending exports powered the German economy to record expansion in the second quarter, producing a broad-based recovery that put Europe’s largest economy well ahead of its peers.

By (Reuters)

Published: Tue 24 Aug 2010, 5:47 PM

Last updated: Mon 6 Apr 2015, 9:51 AM

The 2.2 percent increase in gross domestic product (GDP) was the fastest quarterly growth rate seen in reunified Germany, the Federal Statistics Office said on Tuesday. Consumer spending grew over the quarter for the first time in a year.

“The recovery has reached the full breadth of the German economy,” said Economy Minister Rainer Bruederle, who last week described Germany as being in an “XL-upswing”.

The return to growth in private consumption suggested the economy could keep expanding in the second half of the year even if the expansion in exports fades, as economists widely expect. Private consumption grew by 0.6 percent on the quarter.

The resumption of growth in private spending followed criticism by some countries — including France — that Germany has not done enough to stimulate domestic demand, from which its peers’ exports could benefit.

“The consumer recession has come to an end,” said UniCredit economist Alexander Koch. “We’re unlikely to see a decline in investment or private consumption. So we still have a strong basis for a broad-based upswing in the third quarter.”

The DIHK Chambers of Industry and Commerce forecast the economy would grow by 3.4 percent this year.

Foreign trade and gross capital investment both added 0.8 percentage points to gross domestic product in the second quarter, said Statistics Office, which gave a breakdown of quarterly growth data that it first reported on Aug. 13.

“It must be kept in mind, however, that gross capital investment in particular is still at a relatively low level after the double-digit falls seen at times during economic crisis of 2008/2009,” the Statistics Office said in a statement.

“A positive blip”

Germany accounts for over a quarter of economic output in the euro zone, where industrial orders rose by 2.5 percent on the month in June, slightly more than expected. ⅛ID:nBRLOJE64Q⅜

Its second quarter expansion saw it accelerate away from other euro zone countries, which do not enjoy its export engine.

Germany’s strong second-quarter performance led Germany’s central bank, the Bundesbank, to raise its full-year growth forecast for the economy to 3 percent last week from 2 percent previously. ⅛ID:nLDE67I1CW⅜

Neighbouring France grew by just 0.6 percent in the second quarter and last week, the French government cut its 2011 growth forecast to 2 percent. ⅛ID:nLDE67J16B⅜

Reflecting the woes of some of Germany’s other European peers, Martin Weale, a new Bank of England policymaker, said in a newspaper interview on Tuesday that Britain faced some risk of sliding back into recession. ⅛ID:nLDE67N08F⅜

Nonetheless, German growth will likely slow in the second half.

“This tempo is probably not sustainable,” said Thilo Heidrich at Postbank. “It was a positive blip, marked by catch-up effects. Growth will slow down in coming quarters, but we’re not going to dip into recession again.”

Construction, recovering after a harsh winter, added 0.5 percentage points to GDP in the April-June period.

Highlighting expectations for growth to slow a little, a Reuters poll of 42 economists pointed to a dip in the Ifo economic institute’s business climate index — due for release on Wednesday — to 105.7 in August from 106.2 in July.

Germany’s economic strength has been reflected in the performance of its leading businesses. Of the 30 companies in the blue-chip DAX index, 23 beat market expectations with their earnings in the quarter to end-June and 12 hiked their outlooks.

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