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

Fri May 24, 2013 7:54am EDT
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By Sarah Marsh

BERLIN (Reuters) - Germany's economy will recover from a bout of winter weakness but fall well short of the dynamic growth rates of previous years as euro zone recession and global slowdown stunt exports and investment.

There are homegrown problems too. What hue of government will result from September elections is injecting uncertainty and foreign investors cite worries about over-regulation and Germany's future energy mix after Chancellor Angela Merkel turned her back on nuclear power.

Europe's paymaster was long resilient to the euro debt crisis but contracted at the end of last year and only eked out meager 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 percent growth in 2013 and economists doubt German companies will start investing heavily in the short term.

"Nobody expects strong growth for this year now especially as the first quarter was so sobering," said Christoph Schmidt, head of the German Council of Economic Experts, advisors to the government known as the "wise men".

The economy grew just 0.1 percent in the first quarter after shrinking 0.7 percent in the last three months of 2012.

"Trade will not contribute much, it could even drag on growth, so that leaves domestic demand," Schmidt said. "Private consumption is relatively stable but investments are restrained and the key question will be when and how much they pick up."   Continued...

File photo of people walking past a luxury goods department store at Friedrichstrasse boulevard in Berlin September 14, 2010. REUTERS/Fabrizio Bensch/Files