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German Economy Builds Momentum

German Economy Builds MomentumGerman Economy Builds Momentum

The German economy picked up momentum this month as manufacturing continued growing and services expansion accelerated.

Markit Economics said its composite Purchasing Managers Index of both industries increased to 54.3 from 53.5 in January. A reading above 50 indicates expansion and the gauge is now at its highest in seven months. Demand rose for a second month, Bloomberg reported.

Germany’s economy grew 0.7 percent at the end of 2014, leading expansion in the euro area. With GDP forecast by the European Commission to rise 1.5 percent this year, the country will remain the driving force of the recovery as politicians haggle with Greece over its bailout and try to prevent tensions from harming confidence and growth.

Surfing

“The German economy looks set to continue surfing on a wave of economic wellbeing heading further into 2015,” said Oliver Kolodseike, an economist at Markit. “While low oil prices, a weaker euro and ECB quantitative easing should help boost economic growth, some uncertainties remain, including the debt crisis in Greece.”

Germany’s manufacturing PMI remained at 50.9 in February from January, below the median forecast of economists for a reading of 51.5. The services measure advanced to a five-month high of 55.5 from 54.

The euro fell against the dollar after Markit earlier said French manufacturing shrank at a faster pace than expected this month. The currency weakened 0.3 percent and was trading at $1.1336 as of 8:46 a.m. London time. The country’s factory gauge weakened to 47.7 from 49.2 in January. Economists had forecast a reading of 49.6.

Growth Forecast

Germany's central bank hailed the robustness of the country's economy at the end of last year and suggested it could upgrade its growth forecast for this year, AFP said.

In its latest monthly report, the Bundesbank said consumer spending was the main driving force behind the increased momentum, spurred on by record low unemployment and falling energy prices. A weaker euro also gave exporters a boost, the central bank added.

The 0.7-percent expansion in gross domestic product (GDP) in the final quarter of 2014 lifted growth for the whole year to 1.6 percent.

"Against the background of more optimistic income expectations, increased purchasing power and robust consumer sentiment, household consumption has become the main driving force behind the recovery for now," the Bundesbank wrote.

At the beginning of December, the Bundesbank had halved its growth forecast for 2015 to 1.0 percent and trimmed its 2016 estimate to 1.6 percent from 1.8 percent.

Strike

Strikes by a German train drivers’ union could cost Europe’s biggest economy half a billion euros in cancelled shipments, delays and lost work time, industry leaders warned on Thursday.

The GDL union has announced a fresh round of strikes, the seventh since last September, in a dispute that critics say illustrates the power of tiny unions to choke the German economy.

The union, representing drivers, engineers and other railway employees, has just 34,000 members but has repeatedly paralyzed rail traffic across the country.

The strikes are likely to hit Germany’s motor, steel and chemicals industries. About 70 per cent of parts for the car industry are transported by rail freight, according to Deutsche Bahn, along with 65 per cent of iron ore and around a third of coal and lignite shipments in Germany.

 

Financialtribune.com