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Brimming German economy well placed to ride out political uncertainty
November 23, 2017 / 7:25 AM / a month ago

Brimming German economy well placed to ride out political uncertainty

BERLIN (Reuters) - Exports and rising business investments were the main drivers of growth for the German economy in the third quarter, data showed on Thursday, signaling that the robust upswing in Europe’s largest economy will extend well into next year.

This should allay concerns about risks for the economy linked to Chancellor Angela Merkel’s failure to form a coalition government after an election in September, which raised the possibility of a second vote that could boost the far-right.

Detailed gross domestic product (GDP) data showed that exports rose 1.7 percent on the quarter and imports rose 0.9 percent, which translated in net trade contributing half of the quarterly growth reading of 0.8 percent.

Business investments in machinery and equipment were up by 1.5 percent, contributing 0.1 percentage points to growth. Household spending fell by 0.1 percent and state expenditure was flat.

The figures highlight the resurgence of exports as a driver of growth in an economy that has been relying mainly on private consumption and state spending for a growth cycle also supported by a booming construction sector and low interest rates.

“In the short term, the impact from the current political impasse on the German economy should be (close to) zero,” ING Diba economist Carsten Brzeski said.

“The economy has plenty of positive momentum and the external environment, including low-interest rates and the weak euro, remains favorable enough to shield the economy against political uncertainty,” he said.

UPSWING TO CONTINUE

Markit’s flash composite Purchasing Managers’ Index, released Thursday, also illustrated an economy firing on all cylinders as factories churned out goods at the fastest pace in nearly seven years in November.

“In the late stage of a growth cycle, rebounding investments are an elixir for survival: only through investments can the negative effects of multiplying bottlenecks in production and staff be alleviated,” said Andreas Scheuerle of Deka Bank.

He added: “If you take the first three quarters together, the German economy is in a glorious state.”

The growth data showed investment in construction was down 0.4 percent, resulting in the sector making no contribution to growth in the third quarter.

Economists said the fall in household spending was no reason for alarm. As companies increase investments to meet rising demand, including from a recovering euro zone, more jobs will be created, which bodes well for consumption.

“When investments pick up speed, the foundation for a self-supporting expansion is laid,” said Thomas Gitzel of VP Bank. “This positive process is well underway in Germany. The upswing will continue robustly next year.”

Reporting by Joseph Nasr; Editing by Michael Nienaber and Toby Chopra

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