Germany's economy, Europe's biggest, grew 0.4 percent in the first quarter, the fastest pace in three years, as rising exports made up for falling domestic demand. Growth for the fourth quarter was revised up to 0.3 percent from 0.2 percent, the Federal Statistics Office said. Economists had forecast expansion of 0.3 percent in the first quarter, according to the median of 38 estimates in a Bloomberg News survey. Unlike the U.S., Germany doesn't provide annualized rates.
Exports are equivalent to about a third of Germany's economy and pulled the country out of a recession in the first half of last year. That hasn't been enough to spur demand within Germany, with unemployment deterring consumer spending. Germany's expansion in the first quarter was half the pace of France's. ``No doubt, Germany is absolutely competitive as far as exports are concerned, even with the strong euro,'' said Dieter Wermuth, an economic consultant to UFJ Bank Ltd. and former aide to the German government's panel of economic advisers. ``Trade is driving growth.'' The U.S. and France together buy about a fifth of German exports. The U.S. economy expanded 1 percent in the first quarter, on a comparable basis, and France grew 0.8 percent in the period. Demand from within Germany declined, the statistics office said.
Worst Performer
Germany was the worst-performing economy of the Group of Seven nations last year, contracting for the first time in a decade. The Organization for Economic Cooperation and Development lowered its forecast for 2004 to 1.1 percent, compared with 1.6 percent it predicts for the 12 nations sharing the euro. Growth in the first quarter ``was characterized by a relatively strong increase of the trade surplus, because exports rose almost twice as much as imports,'' the statistics office said in its first estimate of gross domestic product. ``Domestic consumption declined.''
Three years of economic stagnation have kept unemployment above 10 percent for 19 months. Germany's jobless rate rose to 10.5 percent in April from 10.4 percent the previous month, depressing consumer confidence and eroding tax revenue. German retail sales fell in March and the HDE retailers association yesterday said higher prices from taxes, medical costs and oil prices damped spending in the first four months of the year. The group ``hopes'' for a recovery in the second half of the year said HDE President Hermann Franzen in Berlin.
Tax Revenue Forecasts
``What little dynamic we have comes from foreign trade,'' said Gerd Hassel, an economist at ING BHF-Bank AG in Frankfurt, who forecast growth of 0.3 percent. Germany will today lower its forecasts for tax revenue, keeping its deficit in excess of European Union limits and pushing out of sight a target of balancing the budget. A government-led panel will release the revenue forecasts at about noon in Berlin. Italy will overtake Germany as the slowest-growing economy in the G-7 this year, the OECD predicts. Italy's economy probably grew 0.2 percent, according to a Bloomberg News survey of economists ahead of a report today. Italy's statistics office, Istat, releases its figures at 10:30 a.m. in Rome. In both Italy and Germany, the performance of the economy has eroded support for governments.
Support for German Chancellor Gerhard Schroeder's Social Democratic Party had fallen to record lows earlier this year as the government pushed through welfare cuts and labor-market changes aimed at reviving Europe's largest economy from three years of stagnation. The SPD faces 13 elections at European, regional and local level between June and September this year.
ECB Interest Rates
``There is a recovery, but it could peak in the middle of the year,'' said Gregor Beckmann, an economist at HSBC Trinkaus & Burkhardt KGaA in Dusseldorf. ``The big problem is clearly consumer spending. The labor market has not improved and people are uncertain about the future after government reforms.'' The faster-than-expected growth rates in both Germany and France in the first quarter may underpin expectations the European Central Bank will keep its benchmark interest rate at 2 percent in coming months. The ECB has rejected calls from politicians including Schroeder to lower rates in a bid to spur growth. //www.bloomberg.com