World Economy

German Growth Outlook Remains in Positive Region

The German economy is performing well and should see powerful expansion in the months ahead
Germany’s trade surplus widened to €22 billion in May, thanks to a jump in exports.Germany’s trade surplus widened to €22 billion in May, thanks to a jump in exports.

Confidence among German investors fell slightly in July, the ZEW economic institute said Tuesday, adding that the slide was not significant enough to trouble a largely positive outlook.

The institute's closely watched index measuring economic expectations for Germany shed 1.1 points to reach 17.5. It was the second fall in a row and slightly worse than the result analysts surveyed by data company Factset had predicted, AFP reported.

Nevertheless, "the outlook for economic growth in the coming months remains quite positive... supported by the results for the eurozone," ZEW president Achim Wambach said, Investors' expectations for the 19 nations of the euro single currency area in the coming months fell more sharply than their judgment of Germany, falling 2.1 points to 35.6.

But while views of the present state of the German economy were slightly gloomier than in June, the survey revealed a much brighter picture of the eurozone overall. "With growth already at a healthy pace, the message is a broadly encouraging one" from the survey, analyst Jennifer McKeown of Capital Economics commented on the results. "We do not think that it is a sign of an economic slowdown to come."

Slightly less favorable conditions on financial markets this month are likely to have impacted investors' mood more strongly than any change in economic fundamentals, she argued.

Surveys such as the ZEW poll of investors or the Ifo institute's similar questioning of business leaders are used by analysts to help judge future economic growth.

Combined with "hard" indicators like measures of industrial production, they suggest that the German economy is performing well and will see powerful expansion in the months ahead.

But some observers caution that economic actors' mood can become detached from real-world performance, producing a too-optimistic picture in the surveys.

The ZEW results were based on a survey of 216 analysts and institutional investors.

Wrong Assumption

"The outlook for the German economic growth in the coming six months continues to be positive," Wambach added.

The Mannheim-based research institute said its monthly survey among German investors showed that economic sentiment deteriorated to 17.5 from 18.6 in June. This undershot a Reuters consensus forecast for a fall to 18.0.

A separate gauge measuring investors' assessment of the economy's current conditions dropped to 86.4 from 88.0 last month. This compared with the Reuters consensus forecast predicting a stable reading.

VB Bank analyst Thomas Gitzel attributed the drop to possible currency effects.

"German exporters don't like the prospect of a stronger euro. If the euro is rising, export goods become more expensive on world markets," Gitzel said.

The euro has risen above $1.153, a fresh 14-month high, ahead of the next European Central Bank policy meeting on Thursday.

The economy ministry said last week that the economy will continue to enjoy solid growth in the second quarter, driven by soaring private consumption and higher construction activity while net foreign trade is unlikely to add to the expansion.

Analysts expect Germany's gross domestic product to grow by at least 0.6 in the April-June period. The Federal Statistics Office will publish preliminary second quarter GDP growth figures in mid-August.

The International Monetary Fund expects the German economy to grow by 1.8% in 2017 in real terms and by 1.6% in 2018.

Trade Surplus

Germany’s surplus really is economically harmful for the US. And, indeed, the surplus is a drag on the wider world too, not least the other members of the eurozone.

Germany’s trade surplus has widened to €22 billion ($25.4 billion) in May, thanks to a jump in exports. Some experts say the figures will cause fresh tensions with the US government, given Donald Trump’s trenchant criticism of German trade policy.

But German analysts pointed out that imports and exports have both risen this year; proof that the world economy was in decent shape.

So far this year, German has grown its exports by 7.2%, and its imports by 10.3%.

Eurozone investor confidence remains solid, according to the Sentix research group. However, worries over central banks are building, as policymakers prepare to unwind their stimulus programmes.

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