February 23, 2018 / 7:33 AM / 8 months ago

Foreign trade propels fourth-quarter German growth, outlook rosy

BERLIN (Reuters) - Foreign trade drove a 0.6 percent expansion in Europe’s largest economy between October and December, German data showed on Friday, and the momentum from the fourth quarter is widely expected to carry over into the start of 2018.

The data, which confirmed a preliminary reading, shows the German economy ended last year on a strong footing despite unaccustomed political uncertainty in a country that prides itself on its stability.

Germany is still awaiting a new government five months after an inconclusive election in September. Chancellor Angela Merkel’s conservatives and the Social Democrats (SPD) have agreed to form a new coalition but SPD members still have the chance to veto that deal in a ballot.

Nonetheless, the flourishing economy helped the overall state budget surplus hit 36.6 billion euros (32.24 billion pounds) in 2017 — its highest since reunification in 1990, Friday’s data showed.

“The German economy continues to be in good shape,” said Joerg Zeuner, chief economist at KfW state development bank. “Since 2014 it has been growing faster than the long-term trend and the strong upswing will continue this year and next.”

He said the economy had performed well in the fourth quarter despite an unusually high number of public holidays and so-called bridge days, when Germans take an extra day off between public holidays and the weekend.

The Federal Statistics Office said exports, which have traditionally propelled the German economy, climbed by 2.7 percent on the quarter and imports rose by 2.0 percent so net trade contributed 0.5 percentage points to growth.

But private consumption, which has been a key pillar of support in recent years, was stagnant — as was gross capital investment. Neither made any contribution to growth.

Government spending increased, adding 0.1 percentage points to growth.

FILE PHOTO: A van carrier transports a container at the container terminal "Burchardkai" of the Hamburger Hafen und Logistik AG (HHLA) in the harbour of Hamburg, Germany, on late October 17, 2012. REUTERS/Fabian Bimmer/File Photo

The finance ministry expects the economic upturn to continue at the start of 2018 and Ifo chief Clemens Fuest has said business confidence levels pointed to a 0.7 percent expansion between January and March.

That is despite the spectre of a new election hanging over Germany if the SPD’s 464,000 members reject a coalition with Merkel. The result of the SPD ballot is due on March 4.

TAX CUTS?

On Thursday, Ifo’s monthly survey showed morale among businesses weakening in February but remaining at a high level overall even though a stronger euro weighed on the outlook for exporters. Other recent surveys have shown private sector growth slowing and investor sentiment deteriorating.

In a sign that household spending could pick up in the first quarter, consumer morale is at its highest since 2001, with Germans benefiting from record-high employment, strong job security, rising real wages and low borrowing costs.

The outlook is rosy according to Germany’s central bank, the Bundesbank. It expects the economy to expand by a calendar-adjusted 2.5 percent this year — the strongest rate of growth since 2011.

But there are numerous risks for the economy, KfW’s Zeuner warned. He pointed to Britain’s looming departure from the European Union, protectionist tendencies in the United States, increased volatility on financial markets and possible adverse effects from an unexpectedly strong euro.

Germany’s Chambers of Commerce (DIHK) said the state should stop piling up surpluses and instead reduce taxes and improve depreciation opportunities to enable companies to invest more and therefore pave the way for future prosperity.

It urged a new German government to go beyond what is promised in a coalition blueprint, in which the conservatives and SPD pledged to gradually abolish the solidarity tax levied after reunification in 1990 to support poorer eastern states.

“Given that surpluses are continuing to increase, the question regarding tax cuts is: ‘If not now, then when?’,” the DIHK said in a statement.

Reporting by Michelle Martin; Editing by Paul Carrel, Catherine Evans and Peter Graff

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