Household spending and exports drive Germany’s return to growth

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The German economy, Europe’s biggest, returned to modest growth of 0.1 per cent in the third quarter – avoiding a technical recession after contracting slightly in the previous three-month period, official data showed yesterday.

The quarter-on-quarter growth figure for July-September was in line with economists’ expectations. It followed a contraction of 0.1 per cent in April-June, a figure that was revised from the initial reading of 0.2 per cent.

Household spending and exports supported the economy in the third quarter, but investment in machinery and construction declined, the Federal Statistical Office said.

Carsten Brzeski, an economist at ING-DiBa, said “different problems in several important trading partner countries like China, France and Italy combined with uncertainty stemming from the ongoing Ukrainian crisis are the most obvious drivers behind Germany’s current growth problems”.

He added that “the German economy is nowhere near any abyss”, with low unemployment and very competitive industry, but a trend of underwhelming growth over recent quarters also signals that it “could use a new reform impulse sooner rather than later”.

Earlier this week, the German government’s independent panel of economic advisers forecast growth of just one per cent next year following a 1.2 per cent expansion in 2014.

It pointed to “geopolitical risks” such as the Ukraine crisis and weak eurozone growth but also criticised government policies such as plans to introduce a minimum wage next year.

Chancellor Angela Merkel’s government has acknowledged the need for higher investment, but is determined to balance the budget next year and has stressed that its priority is to stimulate private investment rather than adding to public debt.

However, the government recently announced plans to invest an extra 10 billion euros (£8bn) in infrastructure between 2016 and 2018.