March 28, 2018 / 1:11 PM / a month ago

Consumer cheer, baby boom underpin German economic growth

BERLIN (Reuters) - German consumer sentiment rose unexpectedly heading into April as shoppers became more upbeat about their income and grew more willing to spend, a survey showed on Wednesday, indicating Europe’s biggest economy is on course for further expansion.

Consumer spending has become the main source of economic growth in Germany in recent years, backed by record employment, increased job security, above-inflation pay rises, low borrowing costs and a growing population.

In another positive sign for domestic demand, the number of babies born in Germany in 2016 rose to the highest level in two decades, reflecting a booming economy, government incentives and a surge in migration, data from the statistics office showed on Wednesday.

The Nuremberg-based GfK institute said its consumer sentiment indicator, based on a survey of around 2,000 Germans, rose to 10.9 points going into April from 10.8 the previous month. That compared with a Reuters consensus forecast for the index to edge down to 10.7.

“The German economy is currently running soundly and at full throttle,” GfK researcher Rolf Buerkl said, adding that consumers expected this broad-based upswing to continue.

“The excellent jobs market in particular is the critical reason for their optimism,” Buerkl said.

While Germany’s labor market is booming, its public pension system is struggling with a rapid ageing society. To try to boost the birth rate, the government has expanded maternity and paternity benefits as well as childcare in the last decade.

MIGRATION EFFECT FELT

Chancellor Angela Merkel’s decision in 2015 to accept more than a million refugees, mainly from war zones in Syria and Iraq, has also been described as a game changer for population growth.

The Federal Statistics Office said 792,131 babies were born in Germany in 2016, up 7 percent on the year before, and the highest number since 1996.

The overall fertility rate - the average number of children a woman has in her lifetime - rose to 1.59 from 1.50 in the previous year, the highest level since 1973.

Women aged between 30 and 37, who had fewer children when they were younger, are catching up due to favorable economic conditions and family incentives, the statistics office said.

Germany is enjoying an unusually prolonged growth cycle, now in its ninth year.

The DIW economic institute said it expected the economy to grow by 0.7 percent on the quarter in the first three months of 2018. This would mark an increased growth pace from 0.6 percent in the fourth quarter of 2017.

“Private consumption is likely to get a further boost next year when the new government will implement its plans and significantly reduce levies on private households”, DIW researcher Simon Junker said.

The GfK survey was conducted from Feb. 23 to March 9, as the Social Democrats held a ballot on whether to enter a new coalition with Chancellor Angela Merkel’s conservatives. Their decision to do so, announced on March 4, ended more than five months of political uncertainty.

FILE PHOTO: A man walks at the LP12 Mall of Berlin shopping mall is in Berlin, Germany, March 3, 2017. REUTERS/Fabrizio Bensch/File Photo

Reporting by Riham Alkousaa and Michael Nienaber; Editing by Keith Weir

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