Domestic Demand Props Up German Economy

All sectors of the German economy grew in the second quarter, detailed data showed on Friday, suggesting it will be able to weather headwinds from trade frictions.

State spending, investments and private consumption drove growth between April and June, the data showed, confirming a preliminary reading of a 0.5%, Reuters reported.

Investment in construction and state spending grew the most, with both up by 0.6%. The figures confirmed a trend in Europe’s largest economy, which is increasingly dependent on domestic drivers for growth as exports weaken. Private consumption has grown for eighteen months in a row.

The federal statistics office said exports rose by 0.7% on the quarter and imports edged up by 1.7%, which resulted in net trade deducting 0.4 percentage points from growth.

Carsten Brzeski of ING Diba said the figures released on Friday should ease international criticism of Germany for its over-reliance on exports for growth. “Defying the often-heard international criticism, the economy is already showing a very balanced growth model,” he wrote in a note to clients. He said the economy had delivered “a full strike”, with all sectors growing.

The strong reading largely dispelled fears of a slowdown in the eurozone engine room after a weaker first three months. But large neighbors like France and Italy reported much weaker growth.

Most of the drivers for higher second-quarter growth were found at home, with households and the state increasing consumption spending and higher investment in equipment and construction.

Still, several corporate heavyweights in Germany have expressed concern over the outlook, with growth in China slowing and emerging markets experiencing a drag from turmoil in Turkey, Bloomberg said.

The Bundesbank says German expansion is likely to cool this quarter, though the economy remains on a “sound growth path”.

The 19-nation eurozone expanded 0.4% in the second quarter, and a GDP breakdown will be published on Sept. 7. The European Central Bank, which has announced a plan to begin winding down some of its stimulus, will hold its next policy meeting the following week.

Meanwhile, tensions between the European Union’s and US President Donald Trump over his “America First” trade policy “were a threat but did not leave any significant marks on the economy,” Brzeski added.

“Obviously, this could change in the coming months” if a fragile trade truce struck with Washington fails to hold, he warned.