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German growth slows to 0.3 pct in first quarter on weak trade

16 May 2018

Europe's stock markets mostly rose Tuesday as investors absorbed unrevised first-quarter eurozone growth data, but Frankfurt stumbled on downbeat German news, dealers said.

Despite the slower growth in the January-to-March period, the German government says it will stick to its forecast of 2.3-percent growth for the whole of 2018, adding that the dent reported by Destatis was attributable to a large number of strikes in the metalworking industry and a higher number of public holidays. This underpins the assessment that the German economy is suffering from the strong euro, which has strengthened by 9 percent in the last 12 months and made the goods produced in Germany more expensive from the perspective of foreign customers, noted Commerzbank in a research report.

"Is it a pause or a fundamental shift?"

Economists said that weak exports signal that the stronger euro - which has gained about 8% versus the greenback in the past 12 months - and the US -led push towards greater protectionism is already leaving its marks on the export-dependent German economy.

The statistics office said positive contributions in the first quarter came mainly from domestic demand while trade was weak. A pickup in investment spending underpinned economic growth in the first quarter, while exports declined compared with the fourth quarter past year.

Currently, the rise in oil prices might have an additional negative effect, as it would dampen the purchasing power of private households by about 0.7 percent in 2018, when it stood at Dollars 75 by the end of 2017.

Germany's annualized growth rate slowed to 1.2% from 2.5% in the fourth quarter of past year, the Federal Statistical Office said Tuesday. This was the strongest pace since 2011.

The government has said it expects the economy to bounce back in the second quarter due to full order books and high employment.

Economic expansion in Europe's powerhouse is continuing in 2018, but GDP growth has slowed considerably, leaving observers disappointed.

German growth slows to 0.3 pct in first quarter on weak trade