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UPDATE 1-Domestic demand, weather propel German Q1 growth
May 15, 2014 / 7:01 AM / 3 years ago

UPDATE 1-Domestic demand, weather propel German Q1 growth

* Q1 growth strongest in three years

* Consumption, rising investment and mild weather help

* Economists expect slower growth in second quarter (Adds details, reaction)

By Annika Breidthardt

BERLIN, May 15 (Reuters) - German economic growth doubled to the fastest rate in three years in the first three months of 2014 boosted by domestic demand and mild weather but the expansion is expected to slow as uncertainty about the global outlook could weigh further.

Preliminary data from the Statistics Office showed Europe’s largest economy grew by 0.8 percent quarter on quarter and by 2.5 percent on the year in the January-March period. That is likely to help the euro zone as a whole to meagre first-quarter growth.

“Positive impulses came ... exclusively from within the country,” the Statistics Office said in a statement. “By contrast, foreign trade put the brakes on economic growth.”

The Statistics Office confirmed quarterly growth of 0.4 percent in the last three months of 2013 and year-on-year growth of 1.3 percent.

Traditionally export-led, the German economy has recently benefited from a strong labour market boosting private consumption. Public consumption and investments, especially in construction and equipment, have also picked up.

“The strong growth rate shows what is possible when favourable special factors are added to a German economy in good shape,” said Andreas Scheuerle of DekaBank.

“Given the tail wind of the first quarter, one can live with the second quarter bringing markedly less growth - all one-off factors run out at some point.”

The strong German performance stood in stark contrast to the euro zone’s second largest economy France, which came to a standstill in the first quarter, data on Thursday showed.

SLOWING DOWN

Finance Minister Wolfgang Schaeuble said after the release of the data that everything pointed to a broad economic pickup. The German government has said it expects domestic demand to drive growth of 1.8 percent this year, up from 0.4 percent last year but that it will be slower than first-quarter growth.

Economists also expect growth to slow markedly in the second quarter, partly because mild weather boosted construction - helping firms like cement maker HeidelbergCement to higher sales - and because firms ran down inventories.

Recent hard data has shown German exports posting their biggest fall in nearly a year, while industry output, orders and retail sales have all fallen.

The global economic outlook is uncertain and the euro has touched levels that could hurt exporters in the long run.

So far, German firms appear to have largely shrugged off tensions over Ukraine. Germany’s closely-watched Ifo survey of business sentiment improved in its latest reading.

But some German firms have already complained they face hold-ups in business with Russia even though no economic sanctions have been imposed.

Data for the euro zone as a whole at 0900 GMT are expected to show Germany helped the currency bloc to meagre growth of 0.4 percent in the same period. (Reporting by Annika Breidthardt and Madeline Chambers; Editing by Madeline Chambers)

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