German growth expands less than forecast in 2017

By BLOOMBERG

FRANKFURT • The German economy expanded at the fastest pace in six years in 2017, although growth was slightly weaker than analysts forecast.

Gross domestic product (GDP) rose 2.2% after a gain of 1.9% in 2016, the Federal Statistics Office said yesterday at a press conference in Berlin.

That compares to a 2.3% median estimate in a Bloomberg survey of economists.

The government had a fiscal surplus of 1.2% of GDP last year, the most since the country’s reunification.

Germany, Europe’s largest economy and growth engine, is the first of the world’s biggest developed nations to publish 2017 data. Recent reports from company surveys to industrial production signalled a vibrant performance in the final quarter, and strong business sentiment and order flows may boost prospects for 2018.

“The key factor that changed in 2017 was that investments really took off,” said Stefan Kipar, an economist at Bayerische Landesbank in Munich.

Much speaks in favour of that trend continuing, he said, arguing that trade may also pick up in the year ahead.

Investment spending rose 3.5% last year and private consumption increased 2%, the statistics office said.

Public expenditure was up 1.4% and construction gained 2.6%. Exports grew 4.7% and imports 5.2%.

Companies’ investment plans went undeterred by geopolitical uncertainties ranging from heated elections in France and the Netherlands, as well as concerns over protectionist policies emanating from the US. While economists initially foresaw annual German GDP increasing 1.4% at the start of the year, the consensus forecast was revised up at least eight times throughout the course of 2017.

One factor helping businesses was support from the European Central Bank, which kept borrowing costs at record lows. Household consumption in Germany also benefitted from continuously rising employment, which has pushed the jobless rate to the lowest since the country’s reunification just over a quarter of a century ago.

“What surprised everyone was that all components performed better than expected,” said Carsten Brzeski, an economist at ING-DiBa AG in Frankfurt. “There was a lot of concern at the end of 2016 about trade wars and a wave of protectionism — none of that came, and quite to the contrary, we saw world trade blooming and a rebound in demand from the eurozone.”

The Bundesbank predicted in December that the German economy continued its “strong upward trend” in the final quarter of 2017 due to robust manufacturing momentum and the “excellent situation in the labour market”.

The statistics office will publish its quarterly GDP report on Feb 14.