The German economy is set to grow by more than 2 percent this year adjusted for calendar effects, which would be the strongest rate in six years, the BDI industry association said on Tuesday as it lifted its growth forecast for Europe’s biggest economy.
The outlook followed a more muted message from the Economy Ministry, which said the economy could lose some momentum in the second half after powering ahead in the first six months.
Record-high employment, rising real wages and ultra-low borrowing costs are driving a consumer-led upswing in the German economy that looks set to help Chancellor Angela Merkel win a fourth term in office in a federal election on Sept. 24.
The ministry, which has a reputation of giving more cautious outlooks, said in its monthly report that growth would continue in the second half. “However, the dynamics are likely to be somewhat weaker,” it said.
The ministry is so far sticking to its 2017 growth forecast of 1.5 percent unadjusted, which would translate into 1.8 percent on a calendar-adjusted basis. But economists expect the government to raise that in its autumn outlook, due at the end of next month.
Drawing its forecasts from its close links to more than 100,000 large, medium-sized and small firms from all branches of processing industry, which together employ more than 8 million employees, the BDI sees more upbeat figures.
“The German economy is picking up speed,” BDI said in its quarterly economic report. It now expects unadjusted gross domestic product (GDP) to expand by 1.8 percent this year, up from its previous estimate of 1.5 percent.
“Adjusted for calendar effects, this corresponds with a growth rate of slightly more than 2 percent,” BDI said, adding the main reason for the improved outlook was the global recovery.
In the first half of the year German exports rose by almost 4 percent, BDI said. “We also expect a similar expansion rate for the second half,” Germany’s biggest industry association, which has a track record of nailing the data, said.
“In addition to construction investment, equipment investment is also rising thanks to the high capacity utilisation in the industry,” it said.
The International Monetary Fund said in July it expected the German economy to grow by 1.8 percent in 2017 and by 1.6 percent in 2018. This would be slightly below the 1.9 percent it achieved in 2016.
The ministry said private consumption would remain an important growth engine, but a somewhat clouded mood in the retail sector could prompt a slight cooling in the third quarter.
The monthly report chimed with economic data published this month that showed feeble domestic demand drove a surprise fall in industrial orders in July, while industrial production flatlined.
In addition, retail sales fell more than expected on the month in July, suggesting that household spending lost some momentum at the beginning of the third quarter.
The ministry said that overall business morale remained high and firms continued to hire new staff. “But employment growth could be somewhat slower. Also, production in manufacturing and construction could expand rather moderately,” it added.
The German economy grew 0.7 percent on the quarter in the first three months of the year and 0.6 percent from April to June, driven by increased household and state spending as well as higher investments in buildings and machinery.
“The net contribution of foreign trade to overall economic growth was slightly positive in the first half of the year,” the ministry said, adding that the robust labour market was fuelling domestic demand while the ECB’s low interest rates and the slightly cheaper oil prices were providing further impulses.
Source: Reuters (Reporting by Michael Nienaber; Editing by Alison Williams)