German economy shifts into higher gear

Berlin: The German economy picked up more steam than expected in the second quarter, driven by higher household and state spending, suggesting that Europe's biggest economy is powering ahead despite trade-related business uncertainties.
Gross domestic product expanded by 0.5 per cent quarter-on-quarter, the Federal Statistics Office said on Tuesday. That compared with a Reuters forecast of 0.4 per cent.
The office also revised up the quarterly growth rate for the first three months of the year to 0.4 per cent from 0.3 per cent.
"Despite all of the prophecies of doom, the upswing is not only alive; it's also kicking," Bankhaus Lampe economist Alexander Krueger said.
"For the time being, the upswing is unlikely to be stalled by the global trade dispute or overheating."
But the conflict with the United States over tariffs is clouding the outlook for the second half, Krueger said.
On the year, the German economy grew by 2.0 per cent from April to June, calendar-adjusted data showed.
Analysts polled by Reuters had expected a 2.1 per cent expansion.
The Statistics Office said economic growth was mainly driven by higher household spending and increased state consumption. Additional impetus came from investments.
Exports also grew but were outperformed by even stronger imports growth, suggesting that net trade did not contribute to overall economic growth, the office said.
The figures underpin a gradual shift in the German economy away from its traditionally export-oriented growth model towards a more domestically driven upturn propelled by record-high employment, rising wages and booming construction.
"Contrary to the national football team, the German economy did not have a rude awakening at the start of the summer," ING analyst Carsten Brzeski said. "Instead, the economy has returned as an outperformer of the euro zone."
A second estimate of second-quarter euro zone economic growth will be released later in the day.
Preliminary figures last month showed growth slowed to 0.3 per cent quarter-on-quarter.
Following the stronger-than-expected German growth figures, it is possible that euro zone GDP may also be revised up, Jessica Hinds of Capital Economics said.
A separate release from the German statistics office showed that consumer inflation, harmonised to make it comparable with other euro zone data, remained at 2.1 per cent on the year in July.
It was the third month in a row that German headline inflation exceeded the European Central Bank's price stability target of close to but just below 2 per cent for the whole bloc.