German Momentum Gives Another Lift to Europe's Economic Outlook

Updated on
  • Gross domestic product increased 2.2 percent in 2017
  • Euro-area industrial production beat estimates in November

ECB Must Revise Language by Spring, Says Gilles Moec

The German economy’s solid 2017 performance extended into the final three months of the year, with growth of about half a percent.

The expansion, based on estimates from the statistics office, tops off a year that saw the fastest growth since 2011 and investment join private consumption as a growth driver. That sets the euro area’s largest economy up well for 2018, which is further good news for the currency region, already enjoying the strongest expansion in a decade.

Economic Momentum

German economy expanded fastest in six years in 2017

Source: German Federal Statistics Office

Company surveys and industrial data had signaled a vibrant German performance in the fourth quarter, and strong business sentiment and order flows may boost prospects for 2018. There’s also strength beyond its borders, with data Thursday showing euro-region industrial production rising and French business sentiment at the highest in almost seven years

While Germany’s full-year output of 2.2 percent was slightly weaker than analysts estimated, that’s unlikely to damp optimism about the outlook given the strength of recent numbers.

“The German economy is heading into a boom phase with full steam,” said Christian Lips, an economist at NordLB in Hanover. “For 2018, we expect similarly strong economic momentum as in the past year -- the most important sentiment indicators are close to their historic highs.”

In the 19-nation currency bloc, industrial output surged 1 percent in November from the previous month, better than forecast, according to a Eurostat report. Economic confidence is at the highest in 17 years.

The French economy, the region’s second-largest, expanded 0.6 percent in the fourth quarter, according to an estimate by the nation’s central bank. Business sentiment in the country surged to its best reading in almost seven years at the end of 2016.

ECB Support

Momentum across the region is underpinned by unprecedented European Central Bank stimulus.

The German government has saved some 290 billion euros since 2008 thanks to record-low interest rates, Handelsblatt newspaper reported Thursday, citing Bundesbank calculations. The fiscal surplus amounted to 1.2 percent of GDP last year, the most since the country’s reunification.

Germany is the first of the world’s biggest developed nations to publish 2017 data. The statistics office will publish its quarterly GDP report on Feb. 14.

Read more: Breakdown of German GDP components

While economists had predicted 2017 GDP growth of 1.4 percent at the start of the year, the consensus forecast was revised up at least eight times throughout the year. In December, the Bundesbank forecast expansion of 2.3 percent in 2017 and 2.5 percent in 2018

Companies’ investment plans were undeterred by geopolitical uncertainties ranging from heated elections in France and the Netherlands, as well as concerns over protectionist policies emanating from the U.S. Rising employment supported household spending.

Growth Drivers

Private consumption and investment contributed to Germany's best growth rate in 6 years

Source: Federal Statistics Office

“The same fundamentals which have supported growth in 2016 and 2017 should still be in place in 2018,” said Carsten Brzeski, chief economist at ING-Diba in Frankfurt. “The only question is how much additional stimulus low interest rates, a relatively weak euro, strong domestic momentum and the recent upswing of the entire euro-zone economy can still provide to the mature cycle of the German economy.”

— With assistance by Andre Tartar, and Kristian Siedenburg

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