German economy powers on as trade, investments drive third quarter growth

BERLIN - 14 November 2017: 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 euro zone’s growth engine.

Seasonally adjusted gross domestic product (GDP) rose by 0.8 percent on the quarter, stronger than the consensus forecast of in a Reuters poll of 0.6 percent, 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 percent 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 percent in the July-September period from 2.3 percent 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 percent from 0.7 percent. “This makes an upward revision for overall growth estimates likely,” DekaBank analyst Andreas Scheuerle said. The Office 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.”

BOOST FOR MERKEL

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 (FDP) 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-harmonised consumer prices edged down 0.1 percent in October from the previous month, separate data from the Statistics Office showed. The annual inflation rate fell to 1.5 percent from 1.8 percent in September, dropping further below the European Central Bank’s target of nearly 2 percent despite its unprecedented monetary stimulus program.