German economic growth accelerates less than forecast in 2017

[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 rose 2.2 per cent after a gain of 1.9 per cent in 2016, the Federal Statistics Office said on Thursday at a press conference in Berlin. That compares with a 2.3 per cent median estimate in a Bloomberg survey of economists. The government had a fiscal surplus of 1.2 per cent 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 signaled 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 per cent last year and private consumption increased two per cent, the statistics office said. Public expenditure was up 1.4 per cent and construction gained 2.6 per cent. Exports grew 4.7 per cent and imports 5.2 per cent.

Growth Drivers

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 per cent 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 benefited 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 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.

BLOOMBERG