Germany Shrugs Off the VAT Hike

Despite a bigger sales tax bite, Germany has overtaken France as the engine of euro zone growth

German confidence data indicate that the economy has largely shrugged off the impact of a 3% hike in value-added tax imposed at the start of this year. Data confirm that the expected slowdown in German gross-domestic-product growth at the beginning of 2007 will be temporary, with the economy set for robust growth of up to 2% this year. Germany has taken over from France as the engine of euro zone growth and continues to benefit from brisk export demand and surprisingly resilient domestic growth. These developments support the European Central Bank's current hawkish stance.

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