German Domestic Demand Boosts Economy as Export Growth Ebbs

  • Consumer spending buoyed by stable labor market, cheaper oil
  • Demand to compensate for exports amid global slowdown

German domestic demand, buoyed by a stable labor market and low oil prices, will propel the country’s economic growth this year and compensate for slowing exports as emerging economies stumbles.

Domestic spending in Europe’s largest economy is projected to climb 2.3 percent in 2016, compared with an estimated 1.6 percent in 2015, Germany’s Economy Ministry said in its annual outlook Wednesday. The economy as a whole will expand 1.7 percent this year, the same pace as in 2015, according to the forecast.

"The German economy is doing well -- economic growth remains stable," Economy Minister Sigmar Gabriel told reporters in Berlin. "It’s going well for us in Germany, but in order for that to sustain that, we need to invest."

Germany is benefiting like no other member of the 19-nation euro bloc from unprecedented stimulus by the European Central Bank. With unemployment at a record low, wages rising and oil even cheaper than last year, domestic spending has become the driver of economic growth and exporters are shifting their attention from slowing emerging markets to recovering developed nations.

“This country is in a good, stable situation,” Gabriel told reporters in Berlin, saying that much of the world is envious of Germany’s high employment levels.

Export growth, the historic backbone of Germany’s economy, will slow to 3.2 percent compared with 5.4 percent, as a faltering Chinese economy reverberates through the global system. The influx of refugees into Germany will initially have a “small effect” on the labor market, though the migration crisis will present “new, huge challenges,” the report said.

“Sustained economic progress will be supported primarily domestically, especially in the areas of consumer spending and real-estate investment,” according to the report. “In contrast, a slowdown in growth in many developing nations will have a damping effect.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE