German economy rebounds in final quarter of 2016

The German economy grew by 0.4 percent in the final quarter of 2016, data showed on Tuesday, as increased state spending, higher private consumption and construction in Europe's biggest economy more than offset a drag from foreign trade. The growth figure for the final three months of 2016 came in slightly weaker than the consensus forecast in a Reuters poll of 0.5 percent. Still, it marked a sharp rebound after the German economy barely expanded over the summer months.
The overall growth rate for 2016 was confirmed at 1.9 percent, which was the strongest rate in half a decade. "The fourth quarter was not as strong as most economists had expected, but sentiment surveys rose sharply in the past months and orders are also pointing upward," Commerzbank analyst Joerg Kraemer said.
"Therefore growth could slightly pick up in the first quarter of 2017," Kraemer said, adding that private consumption would continue to support overall growth due to record-high employment, strong pay hikes and ultra-low interest rates.
The quarterly GDP growth rate for the third quarter was revised down to 0.1 percent from 0.2 percent and the rate for the second quarter was revised up to 0.5 percent from 0.4 percent, the data showed. The so-called statistical overhang from the fourth quarter was confirmed at 0.5 percent. This means that the German economy started 2017 on an economically strong footing.
On the year, the German economy grew by 1.2 percent unadjusted in the fourth quarter and by 1.7 percent adjusted for workdays, the data showed. Germany's consumption-driven upswing is expected to continue in 2017, although a strong rebound in inflation means consumers will have less money to spend than in the previous years.
For 2017, the German government expects weaker growth of 1.4 percent due to fewer work days and weaker exports. Consumer prices, harmonised to compare with other European countries, rose by 1.9 percent on the year in January, separate data released on Tuesday showed. This was the highest annual inflation rate since July 2013.
On a non-harmonised basis, consumer price inflation for January was also confirmed with the national index rising by 1.9 percent from the previous year. Capital Economics analyst Jack Allen said the pick-up was largely due to food and energy prices, adding that core inflation was unlikely to surge in the coming months and wage growth was still subdued in Germany. "The upshot is that the comparatively high rate of headline inflation in Germany is unlikely to dissuade the European Central Bank from maintaining its asset purchases throughout this year," he said.