German growth hits speed bump in third quarter

[FRANKFURT] German economic growth slowed more sharply than expected in the third quarter, official data showed Tuesday, but analysts said they saw Europe's largest economy bouncing back at year's end.

German investors were equally upbeat, with a closely-watched survey showing a sharp jump in morale in November, although respondents questioned after Donald Trump's shock US election victory were less optimistic about the future.

Germany's gross domestic product grew by 0.2 percent compared with the second quarter, adjusting for price, seasonal and calendar effects, the federal statistics office Destatis said in provisional figures.

Analysts surveyed by Factset had forecast growth of 0.3 percent between July and September, after the economy expanded by 0.4 percent in the second quarter and 0.7 in the first.

But economists were unfazed by the slightly disappointing reading.

The slower quarterly growth "points towards a bump in the road but not to a turning towards general and longer lasting weakness," Unicredit economist Andreas Rees wrote.

Most of the growth was driven by domestic consumption, Destatis said, with rises in both household and public spending.

Meanwhile, exports - long the motor of the German economy - slowed slightly compared with April to June, alongside a small increase in imports.

But a positive purchasing managers' survey - an indicator of future activity - in October and business confidence at a two-year high have stoked hopes of an economic rebound in the final quarter.

Chancellor Angela Merkel was also confident about the health of the German economy.

"We are living in a phase of economic prosperity," she told a gathering of the German BDA employers' association in Berlin, pointing to a "solid" growth rate and low unemployment.

Across the eurozone as a whole, Eurostat on Tuesday confirmed that GDP growth for the region remained low but stable at 0.3 percent in the third quarter of 2016.

The Bundesbank, Germany's central bank, expects the nation's economy to grow by 1.7 percent over the full year, while the federal government projects a slightly more optimistic 1.8 percent.

Observers will look to a business confidence survey later in November for signs of how the economy will react to Trump's election as US president, Unicredit's Rees noted.

Trump's anti-trade, "America first" campaign rhetoric could signal new headwinds for German businesses, which exported more to the US than to any other country in 2015, at almost 114 billion euros ($123 billion) according to Destatis data.

An index released by the ZEW economic institute Tuesday showed that German investor confidence rose for the second month in a row in November, but sentiment was notably "less positive" among those surveyed after Trump's win last week, it said.

"A more isolated US economy would be bad for trade and thus German exporters," Johannes Gareis of Natixis bank said.

German fears of a blow to trade from June's shock vote by British citizens to quit the European Union have receded as it becomes clear that divorce proceedings will be drawn out over years.

The referendum result prompted a plunge in German business confidence in July and August before the mood recovered in September and October.

Britain is Germany's third-largest export customer after the US and France, buying 89 billion euros of German products in 2015.

German companies that sell to the UK have lost revenue as the value of the pound sterling has fallen against the euro since June.

Inflation in the UK fell back slightly in October, official data showed Tuesday, despite predictions that many products would become more expensive in the wake of the Brexit vote.

AFP