German Economic Growth Robust Despite Slowdown in Second Quarter -- Update

By Nina Adam Features Dow Jones Newswires

Germany maintained its solid economic performance, despite an unexpected yet mild slowdown in the second quarter.

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Its gross domestic product grew at a 0.6% in the three months through June, or 2.5% in annualized terms, the Federal Statistical Office said Tuesday. Economists polled by The Wall Street Journal forecast an annualized pace of 2.8%.

Germany's economy hence lagged behind the U.S., which expanded at an annualized pace of 2.6% in the same period, but slightly outpaced the 2.3% growth in the 19-country euro currency zone.

"The economy looks strong and robust," supported by domestic demand, said Andreas Rees, UniCredit's chief Germany economist.

Illustrating the trend, Germany's statistics body lifted its quarterly growth estimate for the first quarter to 0.7%, or an annualized pace of 2.9%, from an earlier estimate of 0.6%.

As a consequence, and following revisions to GDP data before 2017, economists at Commerzbank raised their growth forecast for the German economy to 2% this year from an earlier estimate of 1.6%.

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Economists say that a robust economy is likely to play into the hands of Chancellor Angela Merkel, who has maintained a comfortable polling lead ahead of general elections on Sep. 24.

It is also likely to bolster expectations that the European Central Bank will begin to phase out stimulus measures next year, amid increasing signs that the region's recovery is broadening, economists say.

Germany's statistics body said that "positive impulses" in the second quarter came from domestic demand, as spending by households and the government increased "markedly." Corporate investments in plant and machinery also increased from the first quarter.

Foreign trade, however, weighed on Germany's performance, it said, because imports grew more strongly than exports, on a quarterly basis. A detailed GDP report is due Aug. 25.

Looking ahead, the euro's appreciation in recent months poses a risk to future exports, economists say, as it erodes the international competitiveness of goods produced in the region.

But most forecasters say that Germany's economy should maintain its solid performance in the next few quarters. The Ifo institute recently described the mood among companies at "euphoric" and Germany's VDMA engineering federation said earlier this month that the sector has entered the second half of the year "with a spring in its step."

"All in all, the German economy is still thriving and currently the biggest risk is probably policy complacency," said Carsten Brzeski, an economist at ING.

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

(END) Dow Jones Newswires

August 15, 2017 05:57 ET (09:57 GMT)