German Economy Grows Slower Than Forecast as Trade Drags

An employee works on the halogen light production line at the Royal Philips NV automotive lighting factory in Aachen, Germany
  • 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 rose a seasonally-adjusted 0.4 percent in the three months through December, according to the Federal Statistics Office in Wiesbaden, which had earlier predicted that the economy expanded about half a percent. The rate is below the 0.5 percent forecast in a Bloomberg survey. The figure for the third quarter was revised lower to 0.1 percent.

With annual growth of 1.9 percent 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 AG in Frankfurt. “Growth drivers will be similar in 2017.”

The euro fell after the report and traded at $1.0629 at 9:33 a.m. 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 percent 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.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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