Picture: 123RF
Picture: 123RF

Frankfurt — The German economy powered ahead in the third quarter, underpinning a recovery in the eurozone.

GDP rose 0.8% in the July to September period after increasing 0.6% in the previous three months, the Federal Statistics Office in Wiesbaden said on Tuesday. That’s well above the 0.6% median estimate in a Bloomberg survey. Output increased 2.8% from a year earlier when adjusted for working days.

The report confirms the Bundesbank’s prediction that the German economy carried its strong growth momentum into the second half, putting it on course for its best performance since 2011 and potentially straining against its maximum capacity. As the eurozone’s largest economy, that expansion is bolstering the currency bloc’s upturn and supporting the global outlook.

"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?"

Growth in the third quarter was driven by exports and capital investment, the statistics office said. Net trade made a positive contribution to GDP, and spending on equipment was especially strong.

While Germany has long been an engine of expansion for the eurozone thanks to robust domestic demand and striving exports, the rest of the region is finally catching up. Differences in growth rates between member states have shrunk to the smallest in the region’s history and the European Commission said last week that the 19-nation region will grow at its fastest pace in a decade this year.

GDP in the bloc increased 0.6% in the third quarter. Economists predict Eurostat will confirm that number at 11am Luxembourg time, following reports from Slovakia, the Netherlands, Italy and Portugal.

The International Monetary Fund (IMF) said on Monday that strengthening growth across the European region — which includes the eurozone as well as developing economies in the central and eastern part of the continent — is spilling over into the rest of the world. The brighter prospects accounted for the bulk of the upward revision to its global outlook in October.

The European Central Bank is taking credit for putting the economy back on its feet after a sovereign-debt crisis produced record unemployment and near-deflation, and threatened the survival of the currency union. Vice-president Vitor Constâncio said on Monday that policy makers have been "highly successful" in driving the recovery by cutting interest rates below zero and buying more than ¤2-trillion in assets, mostly government bonds.

His executive board colleague Benoît Coeuré 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.

Bloomberg

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