Germany Puts Euro-Area Economy in Line for Best Growth in Years

By: | at 05:21 AM | International Trade  

The euro-area economy maintained its solid pace of expansion in the third quarter, keeping it on track for its best annual performance in a decade.

Gross domestic product rose 0.6 percent in the period, unchanged from a flash estimate, the European Union’s statistics office said Tuesday. In Germany, the region’s largest economy, expansion accelerated to 0.8 percent, while Italy’s picked up to 0.5 percent.

Supported by monetary stimulus from the European Central Bank, the economy of the single currency has picked itself up from a period of record unemployment and near deflation. Now, the European Commission says its heading for its best growth since before the financial crisis and it’s being cited by the IMF as the main reason for a global growth upgrade last month.

The euro strengthened after the data were released, climbing to $1.1715, up 0.4 percent on the day at 11:17 a.m. in Frankfurt.

The ECB is taking credit for putting the euro economy back on its feet after a crisis that threatened the survival of the currency union. Vice President Vitor Constancio said Monday that policy makers have been “highly successful” in driving the recovery with interest-rate cuts and stimulus programs.

His Executive Board colleague Benoit Coeure argued that the region’s upswing is probably the strongest in almost two decades in terms of “robustness and balance,” creating scope for structural reforms that would come as policy makers scale back monetary stimulus.

The appetite for such measures is currently being tested in Germany, where Chancellor Angela Merkel entered the final stretch of preliminary talks to form a new government, with factions in the complex multi-party negotiations remaining far apart.

Any decisions taken by the future coalition partners on whether to cut taxes or funnel more money into education and digital infrastructure will impact Germany’s growth prospects. The rate of economic expansion over the next two years looks set to exceed the pace that’s sustainable in the long term.

“As cumbersome and as difficult as the coalition talks in Berlin are currently are, spending more money in our view remains the easiest-to-agree-on common denominator for any next German government,” Carsten Brzeski, chief economist at ING-Bank AG said in a note. “There are plenty of ingredients for another extension of the current golden cycle.”

Related story: From Lost Decade to Golden Years: Euro-Area Economy Picks Up

In Germany, the jump in gross domestic product was driven by exports, while investment improved as companies spent more on new equipment. But while its momentum is proving a support to both the euro area and the global outlook, the pace also means Germany is potentially straining against its maximum capacity, with repercussions for inflationary pressures.

Germany’s ZEW investor confidence index rose in November for a third month, to 18.7, missing forecasts for an increase to 19.5. Still, the reading was the highest since May and showed the outlook for German economy continued to be “gratifyingly positive,” ZEW President Achim Wambach said in a statement.

“You can feel the German economy is really humming along,” Holger Sandte, chief European analyst at Nordea Markets in Copenhagen, said before the release. “We are looking at a pretty robust picture so that raises the question: where is the speed limit?”


Discussion

Be the first to comment on this article!

To avoid Spammers, we ask that you log in using your AJOT.com account. Free accounts have access to commenting.

Did you forget your password?

It happens...