Photographer: Daniel Karmann/AFP via Getty Images

German Investment Picks Up as Trade Drags on Economic Growth

  • Capital spending rose 1.5% last quarter, led by construction
  • Public expenditure jumped, government still posted surplus

Investment and domestic consumption led German economic growth in the final quarter of 2015 as an external slowdown weighed on trade.

Capital investment rose 1.5 percent in the three months through December, up from a revised 0.1 percent the previous quarter, the Federal Statistics Office in Wiesbaden said on Tuesday. Government spending jumped 1 percent, after 0.5 percent previously. Growth in private spending slowed to 0.3 percent from 0.6 percent. Net trade dragged on the economy as imports rose and exports fell. Gross domestic product expanded 0.3 percent, in line with a Feb. 12 estimate.

The investment gain may signal that rock-bottom interest rates and record-low unemployment are persuading companies to bolster their capacity to take advantage of rising domestic consumption. At the same time, a China-led emerging market slowdown that has roiled investors and cut into exports is taking a toll on business confidence.

“Investment was rather solid,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “On the other hand, given the rather weak development of exports, you can see that there’s a problem for the German economy.”

Trade Drag

Domestic demand added 0.3 percentage point to GDP last quarter, the report showed. Investment also added 0.3 percentage point, led by construction. Net trade subtracted 0.5 percentage point as exports dropped 0.6 percent. Imports rose 0.5 percent.

The German government had a budget surplus of 19.4 billion euros ($21.4 billion) in 2015, equivalent to 0.6 percent of gross domestic product, the statistics office said in a separate report.

The nation’s economy has taken a hit from weak global demand, with the Markit Economics Purchasing Managers Index of manufacturing falling to a 15-month low in February. The rate of job creation was the slowest in almost a year, according to the report.

A survey of business confidence by the Ifo institute to be published at 10 a.m. in Munich is forecast by economists to fall for a third month. Investor confidence slid to its lowest level since October 2014, the ZEW Center for European Economic Research in Mannheim said last week.

Weaker Outlook

The Organization for Economic Cooperation and Development cut its global economic forecasts last week, noting that China’s rebalancing and financial volatility are weighing on growth prospects, and predicting that both Germany and the euro region will expand less this year than previously estimated.

The European Central Bank has said it’s ready to act with fresh stimulus if needed to counter any risks to the euro-area economy. Policy makers will make a decision on March 10. In Germany, that may give an added boost to an economy already benefiting from cheaper fuel prices and rising wages.

“It was very much about consumers last year,” Jennifer McKeown, senior economist at Capital Economics Ltd. in London, said before the report. “Now that the oil prices have fallen sharply, inflation has fallen quite sharply, that’s given a boost to real incomes and German consumers have responded.”

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