Domestic demand drives bumper Q2 growth in Germany

Updated: Friday, 23 Aug 2013 13:01

Domestic demand drove a broad-based upturn in Europe's largest economy between April and June.

This contributed to the strongest German quarterly expansion in more than a year and fuelled optimism the economy could outperform in 2013.

The seasonally adjusted data from the Federal Statistics Office confirmed an earlier flash estimate showing Germany's gross domestic product (GDP) rose by 0.7% on the quarter.

The figures also showed that GDP increased by 0.9% on the year in the second quarter.

Domestic demand added 0.5 percentage points to GDP in the second quarter, construction spending contributed 0.3 percentage points and foreign trade 0.2 percentage points. Only inventories were a drag, subtracting a modest 0.1 points.

Analysts said that growth was mainly driven by domestic factors, with the weather-driven catching up of the construction sector outshining all other components.

The strong second-quarter growth data, released a month before a federal election, will be welcome news for Chancellor Angela Merkel who is seeking a third term in the vote on September 22.

Her government expects growth of 0.5% in 2013, but Finance Minister Wolfgang Schaeuble said this week growth could end up being as high as 0.7%.

While Europe's economic powerhouse steamed ahead during the early years of the euro zone crisis, it slowed last year and even contracted in the fourth quarter as exports languished and investment was sluggish.

But investments picked up significantly between April and June, largely due to weather-related catch-up effects after an unusually long and cold winter, while net trade also made a positive contribution to growth.