German economy to grow despite increased risks such as Brexit: ministry

[BERLIN] The German economy remains on a solid growth path despite the recent slowdown in the second quarter, but external risks have increased after the British decision to leave the European Union, the Finance Ministry said on Friday.

Growth in Europe's largest economy slowed less than expected in the three months to June as higher exports, strong private consumption and increased state spending compensated for weaker investment in construction and machinery.

The growth rate of 0.4 per cent was double the Reuters consensus forecast and the slowdown was widely expected after a mild winter helped the German economy to grow 0.7 per cent in the first three months, the strongest quarterly rate in two years.

In its monthly report, the Finance Ministry said the economy would continue to grow due to strong domestic demand which is boosted by record-high employment, rising real wages, low inflation rates and relatively cheap energy prices.

"The good state of the German economy speaks for a continuation of the economic upturn in the coming months, though external risks have increased with the Brexit referendum," it said.

The vibrant domestic economic activity is pushing up tax income, with revenues of the federal government and the 16 states up 4.6 per cent on the year in the first seven months of 2016, the ministry said. This is more than the expected increase of 3.0 per cent for the whole year.

The tax flow slowed slightly in July. But the ministry attributed this drop to special factors such as lower revenues from the duty on tobacco after three stronger months in the spring.

"The underlying pace of income growth remains positive and is in line with the overall economic development," it said.

The rising tax revenue is enabling Finance Minister Wolfgang Schaeuble to increase state spending on migrants and infrastructure while sticking to his cherished goal of a balanced budget ahead of the federal elections in 2017.

REUTERS