German public finances in black even as growth slows

Germany's public finances were back in the black in the first six months of this year, even as the eurozone debt crisis put the brakes on growth of region's biggest economy, official data showed Thursday. In the period from January to June, Germany's public accounts showed a surplus of 8.3 billion euros ($10.4 billion), equivalent to 0.6 percent of gross domestic product (GDP), the federal statistics office Destatis said in a statement. That was primarily due to a 11.6-billion-euro surplus in the welfare system budget owing to record-low unemployment. And it more than offset a 3.3-billion-euro deficit in the federal, regional state and municipal budgets, the statisticians calculated. Given the favourable economic situation in Germany, the state's revenues increased by 2.9 percent in the six-month period, while spending increased by just 0.8 percent. Nevertheless, the half-year surplus could not be extrapolated for the whole year, as public finances develop differently during the course of the year, Destatis cautioned. Under EU rules, eurozone countries are not allowed to run up deficit ratios in excess of 3.0 percent and are obliged to bring them close to balance or even to a surplus in the medium term. Last month, the government halved its forecast for the public deficit this year from 1.0 percent to "a good half-percent" thanks to the favourable overall economic development, and the good situation on the labour market particular. Germany is holding up comparatively well to the long-running sovereign debt crisis, thanks largely to deep structural reforms implemented a number of years ago, while many of its eurozone partners are teetering on the edge of or are already in recession. The German economy grew by 0.3 percent in the second quarter of this year, after already expanding by 0.5 percent in preceding three months, according to final data also published by Destatis on Thursday. The numbers match a preliminary estimate already published last week. Rising exports and robust consumer demand are helping inoculate the German economy against the recession plaguing many of its neighbours, the data showed. Exports increased by 2.5 percent quarter-on-quarter in the period from April to June, household spending was up by 0.4 percent and state spending by 0.2 percent. However, the debt crisis is beginning to hurt investment, with construction investment slipping by 0.3 percent and investment in equipment down by as much as 2.3 percent, the statisticians calculated. Analysts said the data showed that German economic growth would continue to slow in subsequent quarters. "In our view, the robust performance of net trade is not set to last as global demand is easing and German exports to the other eurozone countries will fall sharply in the second half," said Newedge Strategy analyst Annalisa Piazza. Natixis economist Constantin Wirschke agreed. "After second-quarter growth came in line with our expectations, we are rather cautious on growth prospects in the third quarter," he said. "We see flat quarter-on-quarter growth in Germany, driven by an inevitable slowdown in trade due to the slowdown in most trading partners of Germany," the analyst said. "Conversely, private consumption is expected to remain a bright spot throughout the year in Germany. For the fourth quarter, we are slightly more optimistic but this is, to a certain extent, contingent on stronger growth in the eurozone and globally," he concluded. Christian Schulz at Berenberg Bank said the euro crisis "is hurting the German economy mainly by restraining investment as companies worry about the future of the currency zone." However, if the European Central Bank takes more anti-crisis measures at its policy meeting next month, "investment could resume quickly, given the favourable financing conditions. With robust private consumption, the German economy could expand nicely again towards the end of the year," Schulz concluded.