German Economy Powers Ahead, a Boost for Merkel

Germany’s economy powered ahead in the third quarter thanks to buoyant exports and investments, data showed on Tuesday, as it cemented its role as the eurozone’s growth engine.

Seasonally adjusted gross domestic product rose by 0.8% on the quarter, stronger than the consensus forecast in a Reuters poll of 0.6%, which was also the second quarter growth rate.

“The upswing continues and it’s broad-based,” Sal. Oppenheim economist Ulrike Kastens said, noting that companies were also contributing to the expansion by stepping up investments.

The German economy grew by 2.3% on the year in the third quarter, unadjusted data showed. This was in line with a consensus forecast.

Adjusted for calendar affects, the yearly growth rate rose to 2.8% in the July-September period from 2.3% in the previous quarter, the office said. This was the strongest reading since the beginning of 2014.

The Federal Statistics Office also revised up the quarterly growth rate for the first quarter to 0.9% from 0.7%. “This makes an upward revision for overall growth estimates likely,” DekaBank analyst Andreas Scheuerle said.

The FSO said positive impulses for growth in the third quarter came mainly from net foreign trade as exports increased more strongly than imports. “While state and household consumption remained roughly on the previous quarter’s level, gross capital investments contributed to overall growth,” the office said. “Especially investments in equipment rose on the quarter.”

The figures will make welcome reading for Chancellor Angela Merkel as her conservative bloc tries to forge a three-way coalition government with the pro-business Free Democrats and the left-leaning Greens, an alliance untested on a national level.

“As firms are now investing more, this will also increase productivity,” DZ BanK analyst Michael Holstein said. “This can also lead to stronger pay hikes—the upswing is entering a new phase.” But the upswing in Europe’s biggest economy has yet to start pushing up inflation on a sustained basis.

EU-harmonized consumer prices edged down 0.1% in October from the previous month, separate data from the FSO showed.

The annual inflation rate fell to 1.5% from 1.8% in September, dropping further below the European Central Bank’s target of nearly 2% despite its unprecedented monetary stimulus program.