World Economy

Germany on Growth Path

Germany on Growth PathGermany on Growth Path

The German economy remains on a solid growth path despite the recent slowdown in the second quarter, but external risks have increased after the British decision to leave the European Union, the finance ministry said on Friday.

Growth in Europe’s largest economy slowed less than expected in the three months to June as higher exports, strong private consumption and increased state spending compensated for weaker investment in construction and machinery.

The growth rate of 0.4% was double the Reuters consensus forecast and the slowdown was widely expected after a mild winter helped the German economy to grow 0.7% in the first three months, the strongest quarterly rate in two years.

In its monthly report, the ministry said the economy would continue to grow due to strong domestic demand which is boosted by record-high employment, rising real wages, low inflation rates and relatively cheap energy prices.

“The good state of the German economy speaks for a continuation of the economic upturn in the coming months, though external risks have increased with the Brexit referendum,” it said.

The vibrant domestic economic activity is pushing up tax income, with revenues of the federal government and the 16 states up 4.6% on the year in the first seven months of 2016, the ministry said. This is more than the expected increase of 3% for the whole year.

The rising tax revenue is enabling Finance Minister Wolfgang Schaeuble to increase state spending on migrants and infrastructure while sticking to his cherished goal of a balanced budget ahead of the federal elections in 2017.