German Economy Grew More Than Forecast in First Quarter

May 15 (Bloomberg) -- The German economy grew five times more than economists forecast in the first quarter as exports to emerging markets offset waning euro-area demand. (Source: Bloomberg)

The German economy grew more than economists forecast in the first quarter as exports to emerging markets offset waning euro-area demand.

Gross domestic product in Europe’s largest economy rose 0.5 percent from the fourth quarter, when it fell 0.2 percent, the Federal Statistics Office said in Wiesbaden today. Economists predicted a 0.1 percent gain, according to the median of 40 estimates in a Bloomberg News survey. French GDP stagnated.

With the euro region’s debt crisis ravaging economies from Greece to Spain, German companies have shifted focus. Carmakers and their suppliers are benefitting from demand in faster- growing markets such as China, while falling unemployment and rising wages are stimulating spending at home. Business confidence rose for a sixth month in April after company earnings outpaced expectations in the first quarter.

“With this morning’s numbers, the German economy has not only avoided recession but could have even helped prevent the entire euro-zone economy falling into technical recession,” said Carsten Brzeski, senior economist at ING Group in Brussels. “One thing is at least for sure: the German economy remains the powerhouse of the euro-zone economy.”

The euro extended gains after the GDP report, rising to $1.2865 at 10 a.m. in Frankfurt from $1.2823 this morning.

Fillip for Merkel

Evidence of an improving economy is a fillip to Chancellor Angela Merkel as she prepares to host French President Francois Hollande today. Hollande, who travels to Berlin immediately after his inauguration in Paris, won election after campaigning against Merkel’s austerity drive in favor of more focus on growth.

The debt crisis has already pushed eight euro-region countries into recession, commonly defined as two consecutive quarters of contraction.

Italy said today its economy contracted for a third straight quarter, with GDP dropping 0.8 percent in the first three months of this year. The Netherlands also recorded its third quarterly contraction in a row. France had zero growth in the quarter, in line with economists’ median forecast.

The European Union’s statistics office in Luxembourg publishes euro-area data at 11 a.m.

The 17-nation economy probably shrank 0.2 percent in the period after contracting 0.3 percent at the end of last year, according to the median of 38 forecasts in another Bloomberg survey conducted before today’s German report.

Euro-Area Stagnation?

“The euro area could get away with stagnation in the first quarter,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “Today’s data mean German growth forecasts for this year have to be massively revised up,” he added.

Germany’s economy will grow 0.7 percent in 2012 and 1.7 percent in 2013, the European Commission forecast on May 11. By contrast, the euro region’s and those of seven member countries will contract this year, it said.

The German statistics office said first-quarter growth was mainly driven by net trade as exports rose. Domestic consumption also increased while investment declined. A detailed breakdown for the quarter will be published on May 24. From a year earlier, GDP increased 1.7 percent.

Germany’s benchmark DAX Index (DAX) has climbed 9.4 percent this year, compared to a 1 percent gain in the Stoxx Europe 600 Index. Earnings at companies listed on Germany’s HDAX Index (HDAX) of the country’s most highly capitalized stocks beat analysts’ estimates by an average 7 percent in the first quarter, with carmakers and their suppliers surprising most.

‘Rosy’ Outlook

Earnings per share at Volkswagen AG (VOW), Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI) exceeded expectations by as much as 52 percent. Continental AG (CON)’s Chief Financial Officer Wolfgang Schaefer said on May 3 that Europe’s second-largest auto-parts maker may raise its sales forecast next quarter should the stable development continue.

“World trade will pick up in the second half of the year, the global economy should become stronger and Germany will benefit from that,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “The outlook is quite rosy, with above-average growth but also above-average inflation rates.”

Annual consumer price gains in Germany have exceeded the European Central Bank’s 2 percent limit since January last year and Bundesbank President Jens Weidmann said in an interview with Sueddeutsche Zeitung published May 11 that inflation may be higher than in the past.

Wage Deals

That may weigh on consumer sentiment, even as unemployment holds at the lowest level in two decades and workers are securing some of the biggest pay increases in that period. Germany’s two million public-service workers negotiated 6.3 percent higher pay by the end of next year, and IG Metall, whose 3.6 million members make it the biggest union in Europe, is demanding a 6.5 percent raise.

Metro AG (MEO), Germany’s biggest retailer, reported a wider- than-expected first-quarter loss on May 3 after cutting prices of electronics goods to win back shoppers. Still, companies from Hugo Boss AG (BOS) to Beiersdorf AG (BEI) reported they are profiting from increased consumer spending.

“The domestic economy is still benefiting from an improving labor market and higher wage deals, which are strengthening consumption,” the Bundesbank said last month. “The German economy is currently lacking momentum, even though it’s in good shape overall.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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