German economy defies trade gloom with strong growth

August 17, 2018


The German economy accelerated in the second quarter despite the U.S. move to impose new tariffs on the European Union, official data showed Tuesday, performing slightly better than economists had expected.


Germany’s economy, Europe’s biggest, grew by 0.5 percent compared with the previous three-month period. That is up from 0.4 percent in the first quarter — a figure that was revised upward Tuesday from the initial reading of 0.3 percent given in May. Economists had forecast a 0.4 percent increase this time.


Its performance in the April-June period was helped by higher private and government spending and by increased investment in equipment and construction, the Federal Statistical Office said. Rising exports were outpaced by increasing imports. In year-on-year terms, the economy expanded by 2.3 percent in the second quarter.


In a separate report Tuesday, the European Union’s statistics agency revised upward its estimate of second-quarter growth for the whole of the 19-nation eurozone, to 0.4 percent from the 0.3 percent it had initially estimated. That follows growth of 0.4 percent in the first quarter.


The figure from Germany underlined the country’s continuing robust performance, with business confidence high and unemployment low despite some disappointing data on factory orders this year and concern about global trade tensions.


It has now grown for 34 of the past 37 quarters, said Carsten Brzeski, an economist at ING in Frankfurt, but he cautioned that “the challenges facing the German economy will increase rather than decrease.”


UniCredit economist Andreas Rees said that a further extension of U.S. tariffs on Chinese imports and retaliation by China could weigh on global growth, but “the latest events in Turkey are manageable for the German economy.”


Last month’s deal to defuse the U.S.-EU trade dispute that saw the Trump administration impose tariffs on steel and aluminum and the EU retaliate on various U.S. goods has reduced fears of a direct trans-Atlantic clash, for now.

U.S. President Donald Trump and Commission President Jean-Claude Juncker agreed to start talks intended to achieve “zero tariffs” and “zero subsidies” on non-automotive industrial goods.


German exporters remain wary.


“We should not think ourselves safe, because today’s good figures are not necessarily those of tomorrow, particularly in view of the current international environment,” said Holger Bingmann, the head of the BGA exporters’ association.


“This development could break off abruptly if disputes and trade conflicts escalate.”

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