24 May 2013

Reuters: German economy to pick up but fall short of traditional pace

Germany's economy will recover from a bout of winter weakness but fall well short of the dynamic growth rates of previous years, as eurozone recession and global slowdown stunt exports and investment.

Europe's paymaster was long resilient to the euro debt crisis but contracted at the end of last year and only eked out meagre growth in the first quarter. The Bundesbank said this week a solid second quarter recovery was in prospect. Construction is expected to bounce back after a harsh winter and private consumption will grow thanks to low unemployment, inflation-busting wage increases and low interest rates. But even the government forecasts just 0.5 per cent growth in 2013 and economists doubt German companies will start investing heavily in the short term.

Economy Minister Philipp Rösler gave an upbeat spin, saying that "the positive development of the economy will continue" and investment would revive. Exports to countries outside the European Union dropped 0.2 per cent on the year in the first quarter. Sales to the eurozone were down 3.9 per cent on the year. Japanese exports, meanwhile, have risen strongly since a new government there demanded expansionary money printing.

Another cause of uncertainty is the opposition centre-left's "soak-the-rich" election campaign which promises new taxes even though Merkel, who governs with the pro-business Free Democrats, is still expected to be Chancellor after September's polls.

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