Germany's economy more than doubled its expansion rate in the first quarter as spending picked up, cementing its role as the growth engine for a region in which the effects of high-powered monetary stimulus appear to be gaining traction. The euro zone's dominant economy grew 0.7 percent, its strongest quarterly 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 said on Friday.
The figure beat forecasts as well as a preliminary growth rate of 0.5 percent in the currency bloc as a whole announced by European statistics agency Eurostat in Brussels. Separate national GDP data published on Friday showed quarterly growth accelerated to 0.3 percent in Italy and to 0.5 percent in the Netherlands.
For the German economy, private consumption has overtaken trade as the most important growth driver, with record-low unemployment, low interest rates and higher wages pushing households to spend more. Also on Friday, Germany's biggest trade union, IG Metall, said it agreed a two-stage wage increase of 4.8 percent over 21 months, which analysts said should further boost consumption.
Investment in construction and capital goods rose, the statistics office said, boosted by relatively mild winter weather that had a similar impact in some other euro zone countries, while Europe's migrant crisis also played a role. "It is likely that higher public expenditure contributed to growth in a number of countries, in some cases lifted by spending to deal with the influx of refugees (which was true of Germany)," Howard Archer, chief European economist at IHS, said of the Eurostat data.
Policymakers at the European Central Bank said the investment jump was unlikely to be a blip, supporting the bloc's slow but steady recovery which the bank has underpinned with its stimulus programme. Buying 1.7 trillion euros ($1.93 trillion) worth of assets and cutting rates deep into negative territory, the ECB has pushed down borrowing costs for governments, businesses and households, hoping to kick-start spending to generate growth.
Though the ECB's ultra-loose monetary policy has been criticised by German politicians, economists linked it to the rise in consumption as well as a booming real estate sector. SPEND, SPEND, SPEND Germany's quarterly growth rate easily beat the 0.3 percent posted in the final three months of 2015, and was also higher than all but four of the euro zone states for which Eurostat published quarterly figures.
But the unadjusted year-on-year figure of 1.3 percent missed the Reuters consensus forecast of 1.5 percent, and the economy ministry in Berlin said it expected German growth to slow. That view was shared by economists, who said the impact of weaker exports - a trend fuelled by a stronger euro currency - would eventually be felt as demand from emerging markets ebbs. "Trade remains the problem child because of weakness in emerging markets," said Sal. Oppenheim economist Ulrike Kastens. Holger Sandte of Nordea added: "Growth will not remain so strong, but strong enough so employment continues to rise."