Germany blames commerce as economic system cools greater than forecast – The Enterprise Instances


Tue, May 15, 2018 – 5:09 PM

[FRANKFURT] Germany’s economy grew at the weakest pace in more than a year at the start of 2018, held back by trade, amplifying a slowdown that’s been seen across the euro area this year.

The 0.3 per cent expansion was softer than economists had forecast and just half the pace recorded in the final three months of 2017. The Dutch economy also cooled more than expected. With the 19-nation currency region seeing a broadly similar deceleration, the question for the European Central Bank is whether this is merely a soft patch or indicative of something more alarming.

So far, officials have largely dismissed the sluggish start to the year – blaming factors such as colder weather – and expressed confidence that weakness will dissipate in the course of the year. Speaking on Monday, ECB Governing Council member Francois Villeroy de Galhau argued that growth remains solid and broad-based and that policy makers were still likely to halt asset purchases this year.

The European Commission has also downplayed concerns and this month maintained its forecast that full-year growth will almost match the decade-high pace hit in 2017. Still, there are threats, including rising trade protectionism and a stronger euro that could act as dampers on the expansion in Germany and the euro zone.

“The German economy remains fundamentally strong despite the sudden loss of momentum,” said Oliver Rakau, chief German economist at Oxford Economics. “However, it appears that with last year’s global trade surge fading and the specter of protectionism hanging over firms, the German economy has passed its growth peak for now.”

The euro was little changed on Tuesday and traded at US$1.1928 as of 925 am Frankfurt time. While it’s declined in recent weeks, it’s still up about 9 per cent in the past year.

Germany’s statistics office said first-quarter growth was bolstered by a pickup in equipment investment and construction and a slight increase in private consumption. Government spending declined for the first time in almost five years, with exports and imports also down.

The Bundesbank predicts record orders will boost German output in the coming months. Just last week, Siemens AG raised its outlook for full-year earnings, and HeidelbergCement AG said the economic upswing will boost construction activity in its major markets after a long winter held back first-quarter results.

While shrugging off the recent weakness, the ECB has acknowledged threats to growth, saying last month that global risks have become “more prominent.”

In news that might please European central bankers in their long battle to revive inflation, French wage growth accelerated in the first quarter to 0.7 per cent. While the quarter is often stronger than the rest of the year, that’s still the biggest increase since 2013.

In China, data on Tuesday showed economic momentum broadly held up in April with industrial production exceeding forecasts, though slowing investment signaled a moderation in the coming months. Retail sales also rose less than expected.

BLOOMBERG





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