- Title: Private consumption, construction investment propel German growth
- Date: 24th May 2016
- Summary: PEOPLE WALKING AROUND IN STREET 50 PERCENT SALE SIGN PEOPLE WALKING DOWN THE STREET SHOPS SIGNS/SATURN/KARSTADT SPORTS MALE MANNEQUINS IN SHOP WINDOW VARIOUS OF STACK OF MENS SHIRTS WITH SALE TAG
- Embargoed: 8th June 2016 11:31
- Keywords: Germany GDP shoppers retail construction building imports exports Simon Smith FXPro
- Location: LONDON, ENGLAND, UK, HAMBURG GERMANY & UNKNOWN LOCATIONS IN GERMANY
- City: LONDON, ENGLAND, UK, HAMBURG GERMANY & UNKNOWN LOCATIONS IN GERMANY
- Country: Germany
- Topics: Economic Events
- Reuters ID: LVA0024J62GZX
- Aspect Ratio: 16:9
- Story Text:Strong private consumption and higher construction investment drove a 0.7 percent rise in German gross domestic product in the first quarter, more than offsetting the effects of weaker foreign trade, data showed on Tuesday (May 24).
The German government's increased spending on refugees and the European Central Bank's ultra-low interest rates were among factors singled out by analysts to explain the biggest quarterly expansion in two years for Europe's largest economy.
Confirming a preliminary reading for growth, the Federal Statistics Office said consumer spending and construction investment had each contributed 0.2 percentage points to GDP in the January-March period.
Record-low borrowing costs are encouraging a growing number of Germans to overcome a traditional aversion to buying their own flats and houses, with some also regarding property as an attractive investment.
"Strong capital investment is one of the primary drivers of the growth picture we're seeing in Q1 especially on the building site, Germany doesn't need rates this low but is taking advantage of it. You can see that in these numbers, you see it as well travelling around Germany. We've seen for many years, for example German property very stagnant market compared to the UK. You go to cities like Munich and you just see growth, you see buildings, so taking advantage of these very low interest rates which are more for others countries rather than Germany," said Simon Smith, Head of Research at FXPro.
State spending - including the costs of accommodating and integrating last year's record influx of more the one million migrants - and company investment in equipment and plants each contributed 0.1 percentage point to growth.
BayernLB economist Stefan Kipar pointed out that spending on migrants is also trickling into other components of the GDP growth statistics.
The German government plans to spend 9.7 billion euros on supporting and integrating refugees this year, in addition to 6.3 billion euros on combating the root causes of migration from the Middle East and beyond.
The total sum of 16 billion euros is expected to rise in the coming years, with Berlin planning to spend an overall amount of 93.6 billion euros by 2020 while keeping a balanced budget.
On top of this come several billion euros of spending on refugees by the federal states and municipalities.
Germany's strong domestic demand is more than compensating for sluggish export growth as an economic slowdown in emerging markets such as China is clouding the outlook.
The data showed that net foreign trade was a drag of 0.1 points as exports rose at a weaker pace than imports.
The government and the central bank both expect Germany's economic upswing to continue, albeit at a slower pace.
For 2016 as a whole, Berlin predicts a GDP growth rate of 1.7 percent, on a par with last year, when expansion was driven mainly by strong private consumption and higher state spending. - Copyright Holder: FILE REUTERS (CAN SELL)
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