Strong private consumption and higher construction investment drove a 0.7 per cent rise in German gross domestic product in the first quarter, more than offsetting the effects of weaker foreign trade, data showed yesterday.
The German government’s increased spending on refugees and the European Central Bank’s ultra-low interest rates were among factors singled out by analysts to explain the biggest quarterly expansion in two years for Europe’s largest economy.
“The calculation of consumers is pretty simple: If there are no interest rates on the bank account, then let’s just fill the shopping bag,” VP Bank economist Thomas Gitzel said, adding that companies also increased investment in the first quarter.
Confirming a preliminary reading for growth, the Federal Statistics Office said consumer spending and construction investment had each contributed 0.2 percentage points to GDP in the January-March period.
Record-low borrowing costs are encouraging a growing number of Germans to overcome a traditional aversion to buying their own flats and houses, with some also regarding property as an attractive investment.
State spending – including the costs of accommodating and integrating last year’s record influx of more the one million migrants – and company investment in equipment and plants each contributed 0.1 percentage point to growth.
BayernLB economist Stefan Kipar pointed out that spending on migrants is also trickling into other components of the GDP growth statistics.
“The higher state spending on refugees is lifting private consumption through the payout of social benefits,” he said. “And it’s also giving the construction sector an additional push because more refugee shelters are being built.”
The German government plans to spend €9.7 billion on supporting and integrating refugees this year, in addition to €6.3 billion on combating the root causes of migration from the Middle East and beyond.
The total sum of €16 billion is expected to rise in the coming years, with Berlin planning to spend an overall amount of €93.6 billion by 2020 while keeping a balanced budget. On top of this come several billion euros of spending on refugees by the federal states and municipalities.
Germany’s strong domestic demand is more than compensating for sluggish export growth as an economic slowdown in emerging markets is clouding the outlook.
The data showed that net foreign trade was a drag of 0.1 points as exports rose at a weaker pace than imports.
The government and the central bank both expect Germany’s economic upswing to continue, albeit at a slower pace. For 2016 as a whole, Berlin predicts a GDP growth rate of 1.7 per cent, on a par with last year, when expansion was driven mainly by strong private consumption and higher state spending.