German Growth Tops Five-Year High

The German economy, the biggest in the 12-country eurozone, is growing at its fastest rate since the boom of five years ago, owing to increased construction spending and booming company profits, data showed on Aug. 14.

German gross domestic product (GDP) expanded by 0.9% in the second quarter of this year compared with the first quarter, the federal statistics office Destatis said in a statement. That represented an acceleration from the 0.7% of the preceding three months and was the fastest rate of growth since the first quarter of 2001.

Growth in Germany was no longer solely export-driven as in previous economic upturns in the country, with domestic demand identified as the main stimulus. "Growth impulses are coming primarily from inside Germany," Destatis said. "While the momentum of foreign trade has weakened, it was primarily investment in construction and equipment that contributed to the economic pick-up in the second quarter."

The unseasonably warm weather helped boost activity in outdoor sectors such as the construction industry and companies are investing their record-high profits in new plant and equipment.

Furthermore, households are bringing forward big-ticket purchases ahead of the planned rise in value-added tax (VAT) from 16% to 19% with effect from January.

"The economy is in good shape," said DIHK federation of German chambers of commerce president Martin Wansleben. "Our forecast for full-year growth of up to 2.0% is within reach."

"The German GDP data are almost too good to be true," said Bank of America economist Holger Schmieding. "In less than two years, Germany seems to have turned from the sick man of Europe into one of the old continent's 'wunderkinder'." However, some analysts were skeptical about whether the German economy would be able to maintain the same momentum during the coming months given the planned rise in VAT, which experts believe will put the brakes on consumer demand next year.

Copyright Agence France-Presse, 2006

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