Economic growth in Germany, Europe's largest economy, accelerated to the fastest pace in 12 years in the first quarter as companies stepped up spending on machinery and construction.
Gross domestic product rose 1.5 percent from the fourth quarter, when it increased 0.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast 0.7 percent expansion, according to the median of 33 estimates in a Bloomberg News survey.
Germany's resilience is giving the European Central Bank room to leave interest rates at a six-year high to fight inflation. By contrast, the U.S. Federal Reserve has cut rates seven times to stave off a possible recession. Evidence suggests German growth was boosted by a milder-than-usual winter and has since slowed. Higher credit costs, faster inflation and a stronger euro are eroding consumer spending and export competitiveness.
"The surprisingly strong performance was almost entirely driven by the absence of a winter and masks a much weaker trend,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. "From now on, German growth will stagnate.''
The euro rose half a cent after the report to $1.5535 at 9:35 a.m. in Frankfurt.
Consumer Spending
The statistics office said investment was the main driver of first-quarter growth and consumer spending also contributed. While exports aided annual growth, they didn't contribute to expansion in the quarter.
In the year, the economy grew 2.6 percent when adjusted for the number of working days, the office said. It is due to publish a detailed breakdown of the data on May 27.
The European Union's statistics office in Luxembourg will publish first-quarter growth figures for the euro area at 11 a.m. today. Economists expected 0.5 percent expansion before today's national figures were released, according to the median estimate in a Bloomberg survey.
Julian Callow, chief European economist at Barclays Capital in London, said he now expects 0.7 percent first-quarter growth in the euro area after the surprisingly strong German numbers.
French first-quarter GDP growth, at 0.6 percent, also exceeded forecasts, while the Austrian economy expanded 0.8 percent. In Spain, growth slowed to 0.3 percent from 0.8 percent and in the Netherlands to 0.2 percent from 1.2 percent.
Exceptionally Mild
UniCredit Markets & Investment Banking today raised its forecast for German growth this year to 2.5 percent from 1.9 percent, citing the stronger-than-expected expansion in the first quarter. The economy grew 2.5 percent last year.
This year's winter was exceptionally mild and sunny, with temperatures 2.7 degrees Celsius above the long-term average, making it the sixth warmest since 1901, according to the German weather service.
Hochtief AG, Germany's largest construction company, said today that first-quarter profit more than tripled. While it expects higher sales in 2008, full-year pretax profit will be flat as the euro's appreciation hampers orders, the company said.
The currency hit a record $1.6019 on April 22 and is 14 percent higher than it was a year ago.
Export growth may also slow as global demand wanes after the collapse of the U.S. subprime mortgage market, which has triggered about $335 billion in losses and writedowns so far and pushed up credit costs.
German exports and manufacturing orders both fell in March and business confidence declined for the first time in four months in April.
Soaring Prices
At the same time, rising oil and commodity prices have stoked inflation. Consumer prices rose 2.6 percent in April from a year earlier after gaining 3.3 percent in March, the statistics office said in a separate report today.
"Inflation will be the big brake on growth from now on as it damps consumer demand, both domestically and in Germany's main export markets,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt.
German growth will slow to 1.4 percent in 2009, less than the economy's long-term average growth rate of 1.5 percent, the country's government-sponsored research institutes said April 17.
The ECB may start cutting borrowing costs in September to shore up the euro-region economy, a Bloomberg survey of economists shows.
Gross domestic product rose 1.5 percent from the fourth quarter, when it increased 0.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast 0.7 percent expansion, according to the median of 33 estimates in a Bloomberg News survey.
Germany's resilience is giving the European Central Bank room to leave interest rates at a six-year high to fight inflation. By contrast, the U.S. Federal Reserve has cut rates seven times to stave off a possible recession. Evidence suggests German growth was boosted by a milder-than-usual winter and has since slowed. Higher credit costs, faster inflation and a stronger euro are eroding consumer spending and export competitiveness.
"The surprisingly strong performance was almost entirely driven by the absence of a winter and masks a much weaker trend,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. "From now on, German growth will stagnate.''
The euro rose half a cent after the report to $1.5535 at 9:35 a.m. in Frankfurt.
Consumer Spending
The statistics office said investment was the main driver of first-quarter growth and consumer spending also contributed. While exports aided annual growth, they didn't contribute to expansion in the quarter.
In the year, the economy grew 2.6 percent when adjusted for the number of working days, the office said. It is due to publish a detailed breakdown of the data on May 27.
The European Union's statistics office in Luxembourg will publish first-quarter growth figures for the euro area at 11 a.m. today. Economists expected 0.5 percent expansion before today's national figures were released, according to the median estimate in a Bloomberg survey.
Julian Callow, chief European economist at Barclays Capital in London, said he now expects 0.7 percent first-quarter growth in the euro area after the surprisingly strong German numbers.
French first-quarter GDP growth, at 0.6 percent, also exceeded forecasts, while the Austrian economy expanded 0.8 percent. In Spain, growth slowed to 0.3 percent from 0.8 percent and in the Netherlands to 0.2 percent from 1.2 percent.
Exceptionally Mild
UniCredit Markets & Investment Banking today raised its forecast for German growth this year to 2.5 percent from 1.9 percent, citing the stronger-than-expected expansion in the first quarter. The economy grew 2.5 percent last year.
This year's winter was exceptionally mild and sunny, with temperatures 2.7 degrees Celsius above the long-term average, making it the sixth warmest since 1901, according to the German weather service.
Hochtief AG, Germany's largest construction company, said today that first-quarter profit more than tripled. While it expects higher sales in 2008, full-year pretax profit will be flat as the euro's appreciation hampers orders, the company said.
The currency hit a record $1.6019 on April 22 and is 14 percent higher than it was a year ago.
Export growth may also slow as global demand wanes after the collapse of the U.S. subprime mortgage market, which has triggered about $335 billion in losses and writedowns so far and pushed up credit costs.
German exports and manufacturing orders both fell in March and business confidence declined for the first time in four months in April.
Soaring Prices
At the same time, rising oil and commodity prices have stoked inflation. Consumer prices rose 2.6 percent in April from a year earlier after gaining 3.3 percent in March, the statistics office said in a separate report today.
"Inflation will be the big brake on growth from now on as it damps consumer demand, both domestically and in Germany's main export markets,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt.
German growth will slow to 1.4 percent in 2009, less than the economy's long-term average growth rate of 1.5 percent, the country's government-sponsored research institutes said April 17.
The ECB may start cutting borrowing costs in September to shore up the euro-region economy, a Bloomberg survey of economists shows.
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