German Growth Outpaces US as Mild Weather Boosts Construction -- Update

By Nina Adam Features Dow Jones Newswires

Germany's economy accelerated in the first quarter, led by a revival in global trade and buoyant construction activity, cementing its role driving Europe's economic upswing.

Continue Reading Below

Germany's gross domestic product grew at a quarterly clip of 0.6%, or 2.4% in annualized terms, the Destatis statistics office said Friday.

This met economists' forecasts and meant Germany's economy comfortably outpaced the U.S., which expanded by 0.7% annualized in the first quarter.

The U.K., Japan, France and Italy were also lagging behind Europe's largest economy. Canada is the only Group of Seven country that may record a stronger first-quarter result when it publishes its estimate in late May.

Germany's strong economic growth and record employment have bolstered the government's coffers and economists and industry groups are urging it to use its firepower to stimulate domestic investments.

Destatis said mild winter weather contributed to a sharp rise in construction, while rising exports also helped lift first-quarter growth from an annualized 1.7% in the fourth quarter of 2016.

Continue Reading Below

There were signs of a broadening in Germany's growth, which entered its eighth year. Investments in plant and machinery picked up in the course of the first quarter, Destatis said, and many economists forecast this trend will continue.

But the development, albeit encouraging, wasn't enough to compensate for many years of underinvestment, economists said. "Germany urgently needs an investment agenda" and parts of its massive tax revenues should be returned to taxpayers, especially those at the lower end of the income-ladder, said Michael Heise, chief economist at Allianz SE. "The finance minister must be bolder."

Germany's acceleration was key to maintaining a steady pace of expansion in the wider eurozone, which grew at an annualized rate of 1.8% in the first quarter. But while milder weather boosted construction activity in Germany, it appears to have damped growth in other parts of the currency area at the start of the year.

Figures released by the European Union's statistics agency Friday showed industrial production fell for the second straight month in March, and was broadly flat during the first quarter. That was a surprise, and was largely due to a decline in energy output, which fell 3.2% in March from the previous month, after a 4.9% decline in February.

Germany's economy is widely forecast to maintain solid growth, despite global geopolitical and economic uncertainties. The European Commission forecast on Thursday that Germany's economy would grow by 1.6% in 2017--slightly less than in 2016 because of fewer working days in the year-- and 1.9% in 2018.

Chancellor Angela Merkel's party meanwhile hopes to benefit from the country's strong economic track-record in elections this September. Sunday's regional election in North Rhine-Westphalia, the country's most populous state, will be "the first real barometer of the political mood in Germany," said Carsten Brzeski, an economist at ING.

Paul Hannon contributed to this article.

Write to Nina Adam at nina.adam@wsj.com

(END) Dow Jones Newswires

May 12, 2017 06:27 ET (10:27 GMT)