Powerful growth sets scene for election debate

pulse

January 12, 2017 12:23 PM

"The economy urgently needs new impetus from new structural reforms and stronger public and private investment," he said.

Robust domestic comsumption boosted Germany's 2016 growth to 1.9 percent, according the federal statistics office

Europes biggest economy Germany booked solid growth in 2016, official data showed Thursday, with a sizeable surplus in its public finances set to fuel fierce political debate in an election year.

Growth of 1.9 percent was largely powered by household consumption and state spending on refugees, the federal statistics office Destatis said in a preliminary estimate.

The better-than-expected estimate beats last year's expansion of 1.7 percent and marks the fastest pace of growth recorded in Germany since 2011.

"Domestic consumption was decisive for the positive development in the German economy in 2016," Destatis said in a statement, pointing to 2.0-percent growth in household consumption and a 4.2 percent increase in government spending.

"One of the reasons for this strong growth is that a large number of people seeking refuge immigrated, which resulted in considerable costs," Destatis said.

Germany has registered more than one million asylum seekers since 2015 and the government has set aside a multi-billion euro fund to finance the costs of housing and integrating the newcomers.

Exports, traditionally the motor of the German economy, were less critical in 2016, expanding 2.5 percent as imports increased 3.4 percent.

At 19.2 billion euros ($20.4 billion) -- or 0.6 percent of GDP -- the comfortable budget surplus will likely fuel debate as Germany heads for elections expected in September.

'Island of happiness'

Politicians are already battling over how to spend the surplus, with conservatives calling for tax cuts while left-wingers call for increased investment.

Germany's strong performance is also likely to fuel calls from European peers for Berlin to use its fiscal leeway to ramp up spending and help bolster the eurozone recovery.

The "German economy remains an island of happiness," said economist Carsten Brzeski of ING Diba bank.

Growth increased unperturbed by Brexit, a coup attempt in Turkey, Donald Trump's shock US election win and the fall of Italian Prime Minister Matteo Renzi, he added.

"Strong domestic demand has shielded the German economy against most external risks," he said.

Overall growth overshot the 1.8-percent forecast of the Bundesbank, Germany's central bank -- which had already upped its forecast for the year in December.

In absolute terms, Germany's gross domestic product increased to more than 3.1 trillion euros -- consolidating its position above the 3.0 trillion threshold breached for the first time in 2015.

Destatis estimated that the economy expanded around 0.5 percent in the final quarter of 2016, continuing its recovery from a summer slump.

Strong business and investor confidence surveys and positive industrial indicators have some observers predicting the good times will carry on into the new year.

"For 2017, we are expecting a continued upswing," said analyst Stefan Kipar of BayernLB bank.

But Brzeski warned against "self-complacency" among policy makers.

"It is very unlikely that it will get any of these before the elections."

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