Germany's economy shifted into an even higher gear in the third quarter, propelled by buoyant exports and rising company investments in equipment, data showed on Tuesday. In a further positive sign for Europe's biggest economy, the ZEW institute said investor morale improved in November and prospects for the economy remained "encouragingly positive" thanks to high levels of growth across Europe.
Germany is enjoying a consumer-led upswing, helped by record-high employment, moderate inflation and ultra-low borrowing costs. The upturn is boosting tax revenues and the budget surplus, which should help Chancellor Angela Merkel seal a tricky three-way coalition agreement in coming weeks. Seasonally adjusted gross domestic product (GDP) rose by 0.8 percent on the quarter, data from the Statistics Office showed on Tuesday. This beat a consensus forecast of in a Reuters poll of 0.6 percent, which was also the second quarter growth rate.
"The upswing continues and it's broad-based," Sal. Oppenheim economist Ulrike Kastens said, noting that companies were also contributing to the expansion by stepping up investments. The German economy grew by 2.3 percent on the year in the third quarter, unadjusted data showed. This was in line with a consensus forecast. Adjusted for calendar affects, the yearly growth rate rose to 2.8 percent in the July-September period from 2.3 percent in the previous quarter, the office said. This was the strongest reading since the beginning of 2014.
The Federal Statistics Office also revised up the quarterly growth rate for the first quarter to 0.9 percent from 0.7 percent. "This makes an upward revision for overall growth estimates likely," DekaBank analyst Andreas Scheuerle said. The government expects the economy to grow 2.0 percent in 2017 and 1.9 percent in 2018. This would translate into calendar-adjusted rates of 2.2 percent and 2.0 percent respectively.
The Statistics Office said positive impulses for growth in the third quarter came mainly from net foreign trade as exports increased more strongly than imports. "While state and household consumption remained roughly on the previous quarter's level, gross capital investments contributed to overall growth," the office said. "Especially investments in equipment rose on the quarter." In its monthly report, the economy ministry said that the solid economic upswing would stretch into the fourth quarter.
"The indicators point to a brisk continuation of the upswing in the final quarter of the year," it said. The surprisingly strong figures will make welcome reading for Merkel as her conservatives try to forge a coalition government with the pro-business Free Democrats (FDP) and the left-leaning Greens, an alliance untested on a national level.
"As firms are now investing more, this will also increase productivity," DZ Bank analyst Michael Holstein said. "This can also lead to stronger pay hikes - the upswing is entering a new phase." But the upswing in Europe's biggest economy has yet to start pushing up inflation on a sustained basis. EU-harmonised consumer prices edged down 0.1 percent in October from the previous month, separate data from the Statistics Office showed.
The annual inflation rate fell to 1.5 percent from 1.8 percent in September, dropping further below the European Central Bank's target of nearly 2 percent despite its unprecedented monetary stimulus programme. The Mannheim-based ZEW research institute said its monthly survey on investor morale showed that its economic sentiment index rose to 18.7 from 17.6 in October. A separate gauge measuring investors' assessment of the economy's current conditions shot up to 88.8 from 87.0 last month.
"The prospects for the German economy remain encouragingly positive," ZEW President Achim Wambach said, adding that strong growth rates across Europe were supporting future growth in Germany and boosting expectations for the coming six months. "This favourable economic climate should be used to create a stronger and more robust basis for future growth," Wambach added.