Berlin urged to spend more as economy surges ahead

Gross domestic product (GDP) rose by 0.8 percent between July and September compared with the previous quarter, powered by foreign demand and increased investment, the federal statistics office Destatis said.

“German economic growth continues at a high rate,” it said.

The preliminary figure, adjusted for seasonal swings, beat expectations as analysts surveyed by Factset had forecast 0.6 percent growth.

“Exports were stronger than imports in the third quarter. As a result, net exports had a positive impact on the GDP compared to the previous quarter,” according to Destatis.

Robust government and consumer spending “remained rather stable” in the third quarter, it added, while noting that investments had increased, particularly “in machinery and equipment”.

Destatis also revised upwards its first-quarter figure, saying the German economy accelerated by 0.9 percent in the first three months of 2017 instead of the earlier reported 0.7 percent.

Second-quarter growth was confirmed at 0.6 percent.

“Germany’s economic success story goes on and on and on,” said economist Carsten Brzeski of ING Diba bank.

He said he saw little reason to expect a sudden end to the country’s “golden cycle”, given the low interest rate environment, the strong labour market and the expectation that the next government would boost spending.

Chancellor Angela Merkel and her conservative allies are locked in talks with the liberal Free Democrats and the left-leaning Greens to forge an untested three-way coalition after September’s inconclusive election.

They have already agreed to maintain the government’s cherished balanced budget, but among the thorny issues still being debated are demands to dismantle or lower some taxes and boost spending on education and infrastructure.

“With more parties than before likely to be part of the government, and in a position to deliver on some of their campaign proposals, government expenditure will likely rise substantially,” Berenberg economists said in a client note.

– ‘Boost competitiveness’ –

Germany’s European peers and global institutions like the International Monetary Fund have long pleaded with Berlin to spend more of the proceeds of its growth to indirectly boost other eurozone countries.

But calls are also growing at home for Berlin to take action to modernise Europe’s top economy and keep it competitive in the future.

“It’s important that the new government uses this momentum,” said Martin Wansleben, president of the DIHK federation of chambers of commerce.

He said German firms saw digitalisation and cutting red tape as top priorities for the incoming coalition government, and warned that the country’s neglected transport infrastructure was weighing on its competitiveness.

His plea echoes that of Germany’s “wise men” council of economic experts, which last week advised Berlin to act now to future-proof the economy.

The German economy ministry last month sharply upgraded its full-year growth forecast to 2.0 percent, up from 1.5 percent previously.

For 2018, it is pencilling in growth of 1.9 percent.

Europe’s largest economy has in recent years been powered by domestic demand, helped by record-low unemployment, low inflation and an influx of migrants in 2015.

But as the eurozone recovery gathers pace, the economy ministry expects foreign demand for “made in Germany” goods to once again become the main driver of growth.

The European Commission last week raised its eurozone growth forecast for 2017 to 2.2 percent, the fastest pace in a decade.