Germany says domestic demand to drive 2014 growth as trade drags

BERLIN Wed Feb 12, 2014 6:04am EST

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BERLIN Feb 12 (Reuters) - Germany, Europe's largest economy, will gain traction this year as domestic demand strengthens but foreign trade will drag on the traditionally export-oriented economy's growth for a second consecutive year, the Economy Ministry said on Wednesday.

Exports will climb by 4.1 percent after a subdued performance in 2013 but imports will rise even higher - by some 5.0 percent - meaning foreign trade will deduct 0.1 percentage points from gross domestic product (GDP) growth, the ministry said in its annual report.

That should reduce Germany's high current account surplus, for which it was strongly criticised by the U.S. administration last year.

Businesses and consumers at home will be the economy's saving grace. Private consumption is expected to grow by 1.4 percent, helped by a strong labour market, moderate inflation and low interest rates discouraging traditionally frugal Germans from saving.

That should help reduce some of the economic imbalances within the euro zone upon which many blame the region's troubles.

Investment is also expected to rebound this year after falling in 2013. The ministry forecasts that spending on equipment will rise by 4.0 percent while spending on building will increase by 3.2 percent.

The government increased its estimate for 2014 growth to 1.8 percent from a previous forecast of 1.7 percent, confirming an earlier report. It also predicted the economy would grow by 2.0 percent next year.

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