German economic upswing to continue at slower pace

[BERLIN] The German economy remains on a solid growth path due to strong domestic demand, but it is expected to lose some momentum in the coming months as weaker trade hits exports from Europe's largest economy, the Finance Ministry said on Friday.

"The latest economic indicators show that the upswing is likely to continue over the course of the year, albeit at a slower pace," the ministry said in its monthly report.

The government's tax income rose 11 per cent on the year to 100 billion euros (S$154.5 billion) from January to April as rising employment is pushing up income tax revenues and strong private consumption is boosting sales tax receipts, it added.

The higher tax revenues are enabling the government to increase its public spending on refugees and infrastructure without taking on net new debt.

Together with soaring private consumption which is being propelled by rising wages, nearly stable prices, low borrowing costs and cheap energy, public spending is expected to drive growth also in the coming quarters, the ministry said.

But the economy will not be able to keep up its strong growth pace from the beginning of the year because exports will probably rise at a slower rate than imports, it added. "The government expects foreign trade to be a drag in 2016."

The economy grew by 0.7 per cent on the quarter in the first three months of this year, more than doubling its growth rate and cementing its role as the euro zone's growth engine.

It was the strongest growth rate since an identical reading in the first quarter of 2014 as higher state and household expenditure more than offset a dip in foreign trade.

The Federal Statistics Office will publish its detailed GDP data for the first quarter on May 24.

In 2015, strong private consumption and higher state spending drove an overall economic expansion of 1.7 per cent. The government expects the economy to grow by the same rate this year and by 1.5 per cent in 2017.

REUTERS