World Business

German economy surprises with 0.2% Q1 growth

By Christian Vits (China Daily)
Updated: 2010-05-13 10:34

FRANKFURT - Germany's economy unexpectedly grew in the first three months of the year as rising exports and company investment outweighed the effects of the cold winter.

Pedestrians look at the window display in an Escada store in Frankfurt, Germany.[Agencies]

Gross domestic product, adjusted for seasonal effects, rose 0.2 percent from the fourth quarter, when it also gained a revised 0.2 percent, the Federal Statistics Office in Wiesbaden said on Wednesday. Economists predicted stagnation, the median of 31 estimates in a Bloomberg News survey shows. France's economy grew 0.1 percent in the first quarter after 0.5 percent expansion in the fourth, Paris-based Insee said in a separate report.

While the harshest winter in 14 years suppressed construction, latest reports suggest the German economy, Europe's largest, came roaring back to life when building sites reopened with the arrival of spring. Germany has also found a silver lining in Europe's sovereign debt crisis. The euro's 16 percent decline against the dollar since late November is making its exports more competitive abroad. Foreign sales rocketed 10.7 percent in March, the biggest jump in 18 years.

"The growth momentum is much better than the figure suggests as harsh weather conditions restrained expansion," said Andreas Rees, chief German economist at UniCredit in Munich.

"We'll see very, very strong growth in the second quarter due to catch-up effects and the reviving global economy. A weaker euro is the icing on the cake."

The euro rose to $1.2651 at 8:40 am in Frankfurt from $1.2632 before the GDP report was released. It's still close to a 14-month low.

The statistics office said exports and capital investment made positive contributions to first-quarter GDP. Rising inventories and government spending also supported growth, compensating for the negative impact of construction, weaker private consumption and imports.

From a year earlier, GDP grew 1.6 percent when adjusted for the number of working days. Fourth-quarter GDP growth was revised up from an initial estimate of zero.

The Bundesbank forecasts expansion of 1.6 percent this year after the economy contracted 5 percent in 2009, the most since World War II.

Cold weather kept consumers at home and closed building sites over winter, weighing on economic growth. The spring thaw released pent-up demand. Industrial production jumped 4 percent in March, driven by a 26.7 percent surge in construction activity.

Deutsche Post AG, Europe's biggest postal service, raised its full-year outlook on Tuesday after package and freight volumes increased.

Germany's Adidas AG, the world's second-largest sporting-goods maker, expects to double its profit this year as the soccer World Cup increases sales, Chief Executive Officer Herbert Hainer said on May 6.

Growth across the 16-nation euro region may be uneven this year as governments rein in spending to cut budget deficits. Finance ministers this week announced an unprecedented aid package worth almost $1 trillion to counter the fiscal crisis that engulfed Greece and undermined confidence in the euro.

"The rescue package will avoid an uncertainty shock," said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. "The German economy will continue to grow more strongly than the rest of the region in coming months."

Bloomberg News