German GDP growth accelerates to 0.6% at start of 2017

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Vroom vroom.

Germany’s economy picked up speed at the start of the year, expanding 0.6 per cent in the quarter and outstripping its major rivals in a key election year for chancellor Angela Merkel.

The first quarter performance in Europe’s largest economy came in line with an average forecast compiled by Bloomberg, and climbed from the 0.4 per cent posted at the end of 2016. It was the best quarterly growth rate in a year.

Germany’s economy has been enjoying a sweet spot of late, marked by rising growth, expanding trade, and falling unemployment. The quarterly growth pick up contrasts with a slowdown in France in Q1 and means Germany expanded at twice the pace of the UK and more than three times that of the US at the start of the year (see chart below).

Trade and investment both made contributions to Q1 growth, according to the country’s federal statistics office, while household consumption also inched up. Year on year, Q1 growth was 1.7 per cent higher compared to the same period last year.

“The economy seems to be firing on all cylinders”, said Carsten Brzeski, chief economist at ING.

“Germany’s economic performance is a never-ending success story. A chart topper on permanent repeat.”

There are now 43.7m Germans in work, a rise of 638k from 2016 – pushing the country’s unemployment rate down to the lowest since German reunification 27 years ago and raising hopes that the tight labour market will begin to exert a substantial upward pressure on wages.

Higher earnings will be crucial in underpinning spending in the year to come as inflation has picked up to its highest level in four years. Destatis confirmed consumer prices, or a measure of the cost of living in Germany, rose by 2 per cent in April.

“The labour market has retained its improving trend for longer than had been expected in view of the impact from refugees that are increasingly looking for work after their asylum applications have been processed”, said Timo Klein at IHS Markit.

Germans will head to the ballot box in federal elections in September. The incumbent Ms Merkel is hoping to fend of the challenge of the Socialist rival Martin Schulz and seal another four years in office.

Annual German GDP growth will decelerate to 1.6 per cent this year from 1.9 per cent while the unemployment rate will slip to just 3.9 per cent in 2018, according to the European Commission’s latest forecasts.

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