German economy accelerates, grows 0.7 per cent in 1st quarter

BERLIN – The German economy accelerated in the first quarter, growing 0.7 per cent compared with the previous three-month period thanks to spending at home and mild winter weather that boosted construction, official data showed Friday.

The figure for the January-March period compared with growth of 0.3 per cent in last year’s final three months. It was a bit above economists’ forecasts of 0.6 per cent growth and the strongest increase for two years.

The German economy, Europe’s biggest, is traditionally export-heavy but lately has been fueled increasingly by domestic demand. Friday’s report underlined that trend.

The Federal Statistical Office said that private and government spending, along with investment in equipment and construction, increased — the latter helped by relatively mild winter weather. Foreign trade weighed on growth slightly, with imports increasing more than exports.

The government is predicting that gross domestic product will grow 1.7 per cent this year, the same as last year.

“Today’s data are another sign of Germany’s economic strength — at least at first glance,” said Carsten Brzeski, an economist at ING-DiBa in Frankfurt. “The economy defied the financial market turmoil at the start of the year as well as the Chinese slowdown.”

He argued that the biggest risk for Germany is complacency — with spending and construction driving growth and the government “reluctant to follow up on international advice to implement structural reforms.”

Also on Friday, Germany’s biggest industrial union secured a 2.8 per cent pay raise starting in July, followed by a further 2 per cent next April, a deal that is expected to apply to some 3.8 million workers in the automobile and machinery sectors among others.

The deal covers a 21-month period, backdated to April 1, with employees also getting a 150-euro ($171) one-time payment for the April-June period.

The IG Metall union went into negotiations seeking a 5 per cent pay raise over one year. The deal was reached in western North Rhine-Westphalia state, but such agreements are typically extended across the country.

The statistical office said Friday that consumer prices were 0.1 per cent lower in April than a year earlier. However, IG Metall argues that companies’ earnings are healthy and wage increases help strengthen domestic demand, and economic growth.