German economy grows slower than forecast as trade drags

German growth accelerated less than anticipated in the fourth quarter as strong fundamentals in Europe’s largest economy were countered by increased uncertainty abroad.

Gross domestic product (GDP) rose a seasonally-adjusted 0.4 per cent in the three months through December, according to the Federal Statistics Office (FSO) in Wiesbaden, which had earlier predicted that the economy expanded about half a per cent. The rate is below the 0.5 per cent forecast in a Bloomberg survey. The figure for the third quarter was revised lower to 0.1 per cent. 

With annual growth of 1.9 per cent last year, Germany has driven Europe’s slow but steady recovery, aided by a weak euro, cheap oil and the European Central Bank’s stimulus policies. While those tailwinds boosted consumer spending and supported exports, rising inflation pressures and uncertain prospects for global trade have cast doubt over whether the pace of expansion can be maintained.

German fourth-quarter GDP was led by domestic demand, the statistics office said. Government spending increased markedly, and households raised consumption slightly. Investment also developed positively, bolstered by building. With imports outpacing exports, net trade was a drag on growth.

"The data are alright — German growth is solid, and impulses came exactly from where we expected them to do,” said Marco Wagner, an economist at Commerzbank in Frankfurt. "Growth drivers will be similar in 2017.”

The euro fell after the report and traded at $1.0613 at 8:25am Frankfurt time. Bund futures opened higher.

Uncertain outlook

With unemployment at the lowest rate since reunification, exports at a record and business confidence near levels last seen at the beginning of 2014, the German economic outlook remains favorable. But risks are increasing.

At home, faster inflation threatens to eat into consumers’ pockets as wages continue to grow at a subdued pace. Salaries expanded only 1.8 per cent in real terms in 2016.

Political campaigning ahead of national elections in September could deepen divisions over immigration and the euro, throwing into disarray a currency bloc that is already threatened by a surge in populism in France, the Netherlands and Italy.

Abroad, Donald Trump’s administration is sowing seeds of uncertainty by threatening protectionist trade policies and raising the specter of a currency war, by accusing Germany of taking unfair advantage of the euro’s exchange rate.

Collateral damage

In a sign that words from Washington are already sapping confidence, a gauge of investor expectations will fall to 15 in February from 16.6, according to a separate survey. The ZEW institute will publish the data at 11am in Mannheim, Germany.

Trump’s policies "are a risk, and not a small one,” Commerzbank’s Wagner said. "But at the moment they’re too diffuse to be incorporated in projections.”

The Netherlands will publish its fourth-quarter GDP estimate at 9:30am local time, followed half an hour later by Italy, the currency bloc’s third-largest economy. Data for the 19-nation region will follow at 11am, when economists predict a confirmation of the 0.5 per cent on January 31 flash reading.

The European Commission said on Monday it projects euro-area GDP growth will slow to 1.6 per cent this year from 1.7 per cent in 2016, stressing that uncertainty surrounding the forecast was particularly large in the light of Brexit negotiations and Trump’s presidency.

Such risks may also influence the ECB, whose unconventional policies have underpinned the recovery so far. ECB President Mario Draghi has upheld a pledge that stimulus can be increased in case the outlook worsens, even after officials agreed to reduce the pace of government-bond buying to 60 billion euros ($64 billion) from April.

"While the data within the monetary union is pointing to growth risks being more and more in equilibrium, uncertainty and the risk of political shocks outside continental Europe have clearly gone up,” Executive Board member Yves Mersch said on Friday.

Source :Times Of Oman