* German first-half budget surplus 16.1 billion euros
* Weak investment, slow trade shrink German GDP
* Pressure rises for Germany to boost investment spending
(Adds Schaeuble comments)
By Michelle Martin and Noah Barkin
BERLIN, Sept 1 Germany posted its biggest budget
surplus since reunification in the first half of 2014,
underscoring the strength of its finances just as it encounters
growing pressure to spend more to bolster growth in Europe.
The budget figures came as a detailed breakdown of German
gross domestic product (GDP) data showed a sharp decline in
capital investments contributed to a 0.2 percent contraction in
the second quarter, further ammunition for advocates of
"In other European countries the figures will give
confirmation to those who expect more fiscal policy impetus from
Germany," said Holger Sandte, an economist at Nordea Bank.
Partners like France and Italy have been urging Germany to
allow greater fiscal leeway in Europe and take steps at home,
such as cutting taxes and boosting public investment, to
jump-start the euro zone, which stalled in the second quarter.
Last month, European Central Bank President Mario Draghi
appeared to back those calls, breaking with his traditional
support of German-led budget consolidation, and stressing the
need for greater fiscal stimulus.
German Finance Minister Wolfgang Schaeuble has played down
Draghi's remarks as "overinterpreted". German weekly Der Spiegel
reported at the weekend that he and Chancellor Angela Merkel had
called Draghi to complain about the speech, though a government
spokesman denied the chancellor had done so.
On Monday, Merkel left the door open to channeling the
budget surplus into investment programmes, but said this could
happen only if the economy is strong enough.
Schaeuble acknowledged later at a Berlin conference that
there was too little investment in Europe but voiced scepticism
that this should be fixed by public spending or loose monetary
In addition to weak investment spending, the economy is
suffering from weak euro zone demand for German exports, sinking
business confidence in the face of the Ukraine crisis and
worries about the impact of Merkel's shift out of nuclear power.
Some economists believe Germany could suffer another quarter
of contraction in July-September, technically putting it in a
Data showed on Monday that Germany's overall budget surplus
- grouping federal, state and local governments and the social
security system - amounted to 16.1 billion euros ($21.2 billion)
or 1.1 percent of GDP in the first half the year.
That is the strongest fiscal position since reunification in
1990 and puts Germany on track to a achieve a surplus in 2014
for a third straight year. It is the only euro zone state where
the European Commission sees a surplus this year.
"The budget figures reflect the good domestic economy and
the rise in employment and consumption," Nordea's Sandte said.
In his late-August speech at a central bankers' conference
in Jackson Hole, Draghi said it would be "helpful for the
overall stance of policy" if fiscal policy could play a greater
role alongside the ECB's monetary policy. His suggestions
included implementing an EU-wide public investment programme.
Some economists believe Germany is suffering from an
investment crisis that will take the shine off an economy held
up as a model of dynamism during the euro zone's debt crisis.
Total annual investment levels in Germany amount to around
17 percent of GDP - below those of other industrialised
countries, which average over 21 percent.
The detailed breakdown of GDP data showed gross capital
investment in Germany slid by 2.3 percent and construction
investment fell 4.2 percent in the second quarter. This drop was
partly due to a mild winter which boosted building activity in
the first quarter.
Foreign trade, traditionally the driver of German growth,
subtracted 0.2 percentage points from growth while private
consumption and inventories made a positive contribution.
Other data also pointed to a slowdown. Germany's
manufacturing sector expanded at its slowest rate in 11 months
in August and figures from the VDMA engineering association
showed orders stagnated in July as demand at home dropped.
(1 US dollar = 0.7614 euro)
(Reporting by Michelle Martin, Noah Barkin and Annika
Breidthardt; Editing by Ruth Pitchford)