Foreign trade drives fourth quarter German growth as domestic demand disappoints

Tue Feb 25, 2014 5:15am EST
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By Michelle Martin

BERLIN (Reuters) - Foreign trade propelled growth in Europe's largest economy in the fourth quarter while domestic demand, which had been a key growth driver throughout the rest of the year, was a drag.

Seasonally-adjusted data from the Federal Statistics Office on Tuesday confirmed an earlier flash estimate showing German gross domestic product (GDP) increased by a modest 0.4 percent on the quarter between October and December compared with 0.3 percent during the previous three months.

A detailed breakdown showed domestic demand subtracted 0.7 percentage points from growth while foreign trade, which had been weak for much of 2013, added 1.1 percentage points to GDP.

The statistics office said the domestic economy sent "mixed signals". Capital investment picked up significantly, big inventory reductions slammed the brakes on growth and public expenditure was stagnant while private consumption dipped.

Recent sentiment indicators have been upbeat but hard data has been more subdued, raising doubts about the strength of the economy's actual performance.

But economists expect domestic demand to gain momentum this year and Berlin is relying on it to drive a predicted 1.8 expansion while foreign trade is expected to dampen growth.

"High job security and rising incomes as well as very low inflation have been boosting consumer confidence to record highs lately and should translate into stronger household spending growth in 2014," said Christian Schulz at Berenberg Bank.

"The sharp fall in inventories may even trigger a bounce-back in the first quarter of 2014 if inventories are replenished," he added.   Continued...

A worker collects items to pack into boxes at Amazon's logistics centre in Graben near Augsburg December 16, 2013. REUTERS/Michaela Rehle