Con­sump­tion re­plac­ing exports as Ger­man growth en­gine

Kuwait Times - - BUSINESS -

BER­LIN: Ro­bust do­mes­tic con­sump­tion in Ger­many will trans­late into im­ports out­strip­ping exports this year and next, the econ­omy min­istry said yes­ter­day, pre­dict­ing that trade will not con­trib­ute to growth. The min­istry said it ex­pects Europe’s largest econ­omy to ex­pand by 2 per­cent this year, much more than a pre­vi­ous fore­cast of 1.5 per­cent and the strong­est rate since 2011.

The min­istry also raised its growth fore­cast for next year to 1.9 per­cent, up from 1.6 per­cent in April. The growth fore­casts are not ad­justed for work­days. A spokesman for the econ­omy min­istry said the fig­ures would trans­late into cal­en­dar-ad­justed GDP growth rates of 2.2 per­cent in 2017 and 2.0 per­cent in 2018.

Trade made no con­tri­bu­tion to out­put growth in 2015 and 2016 as pri­vate con­sump­tion, state spend­ing and boom­ing con­struc­tion re­placed exports as the main growth driv­ers. This shift has been sup­ported by low bor­row­ing costs cre­ated by the Euro­pean Cen­tral Bank, which is seek­ing to re­store price sta­bil­ity in the euro zone with a mas­sive bond-buy­ing pro­gram and low in­ter­est rates.

“Given the dy­namic do­mes­tic de­mand, im­ports will grow some­what stronger than exports in the years 2017 and 2018,” the min­istry said in a state­ment pre­sent­ing its up­dated fore­casts.

“As such trade will, on bal­ance, pro­vide in this time frame ab­so­lutely no con­tri­bu­tion to growth,” it added. The euro has been strong for much of this year, mak­ing Ger­man exports out­side the euro zone more ex­pen­sive.

The min­istry said con­sumer prices will rise by 1.8 per­cent this year and 1.6 per­cent in 2018, high­light­ing the up­hill bat­tle the ECB faces to nudge up the in­fla­tion rate in the sin­gle cur­rency bloc to its tar­get of just un­der 2 per­cent. Ger­man of­fi­cial are none­the­less con­cerned by the ECB’s loose mone­tary pol­icy and have been urg­ing it to roll back the largesse. By con­trast, some non-Ger­man of­fi­cials have been seek­ing more spend­ing by Ber­lin.

Ger­many faces weeks of un­cer­tainty as Chan­cel­lor An­gela Merkel seeks to form a new coali­tion gov­ern­ment after an elec­tion last month that weak­ened her con­ser­va­tive party. —Reuters

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