German economy bounces back from slow start to year

Germany has bounced back from an early 2018 slowdown, official data showed Tuesday, as the pace of growth accelerated despite the rumblings of a trade war that could trip up its export-led economy.

German economy bounces back from slow start to year
Photo: DPA

Growth rebounded from its first-quarter slide to reach 0.5 percent quarter-on-quarter between April and June, according to preliminary data from federal statistics authority Destatis.

Analysts surveyed by data company Factset had predicted expansion would remain at the pace seen between January and March, when growth slowed to 0.4 percent.

“Contrary to the national soccer team, the German economy did not have a rude awakening at the start of the summer,” ING Diba bank analyst Carsten Brzeski said.

The figures showed Europe's largest economy had grown 2.0 percent year-on-year by the end of the second quarter, a result likely to comfort observers who had feared a slowdown throughout 2018 after the weaker first three months.

Germany also outperformed the average of the 19-nation eurozone, whose growth slowed to 0.3 percent between April and June.

Other major economies Italy and France reported below-average expansion.

Growth was lifted by “positive domestic impulses”, Destatis said, with increased spending on consumption by both households and the state.

A major driver of domestic consumption has been the steady decline in unemployment, with monthly official figures regularly announcing new lows not seen since Germany's 1990 reunification.

Workers in some flagship sectors like metalworking have also begun driving harder wage bargains this year, hinting at an end to the long moderation in salaries that followed the financial crisis.

Investments in equipment and construction, helped along by low interest rates, also swelled in the second three months.

But imports grew faster than exports against a background of trade tensions.

'No all-clear'

The stronger second-quarter growth result was “no all-clear” for the country, said Chambers of Commerce and Industry (DIHK) director Martin Wansleben.

“Trade conflicts are increasingly clouding the international environment,” he said — a major risk for an export-heavy economy like Germany's.

US President Donald Trump's direct faceoff with the European Union has cooled in recent weeks after he and European Commission President Jean-Claude Juncker agreed to talk over transatlantic differences.

It is not clear that Brussels will bend to Trump's demands for what he calls “fair” trade with easier access to the EU for American goods, meaning the showdown is only on ice for the moment.

Meanwhile Germany is also vulnerable to knock-on effects from Washington's confrontation with China, one of the country's biggest trading partners.

And Britain's fast-approaching exit from the European Union threatens to add new hurdles to trade with another major economy.

Indicators of business and investor confidence have fallen back in recent months in response to America and its partners raising tariffs on some goods in a tit-for-tat escalation.

And last week harder data on industrial orders and production in June pointed towards a slowdown.

Nevertheless, “with the economy having grown in 34 out of the last 37 quarters, Germany remains on track for a golden decade,” ING analyst Brzeski said.

But trade tensions, geopolitical risks such as the slump in the Turkish lira and politicians' slowness to invest and reform at home mean “looking ahead, the challenges facing the German economy will increase rather than decrease,” he added.

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Sweden’s new right-wing govt slashes development aid

Sweden, one of the world's biggest international donors, is planning drastic aid cuts in the coming years, the country's new right-wing government said in its budget bill presented on Tuesday.

Sweden's new right-wing govt slashes development aid

Prime Minister Ulf Kristersson’s government said it planned to reduce the country’s international aid by 7.3 billion kronor ($673 million) in 2023, and by another 2.2 billion kronor in 2024.

That is around a 15-percent reduction from what had been planned by the previous left-wing government and means Sweden will abandon its foreign aid target of 1 percent of gross national income.

International aid for refugees will be capped at a maximum of eight percent of its aid, and will also be reduced.

According to the specialised site Donor Tracker, Sweden was the world’s eighth-biggest international aid donor in terms of absolute value last year, and the third-biggest in proportion to the size of its economy, donating 0.92 percent of its gross national income, behind Luxembourg and Norway.

The new government, which is backed for the first time by the anti-immigration Sweden Democrats, had announced in its government programme last month that it would be cutting foreign aid.

Since 1975, Stockholm has gone further than the UN’s recommendation of donating at least 0.7 percent of its wealth to development aid.

Despite its growth forecast being revised downwards — the economy is expected to shrink by 0.4 percent next year and grow by 2 percent in 2024 — the 2023 budget forecasts a surplus of 0.7 percent of gross domestic product.

It calls for an additional 40 billion kronor in spending, with rising envelopes for crime fighting and the building of new nuclear reactors, as well as a reduction in taxes on petrol and an increase in the defence budget.

The new government is a minority coalition made up of Kristersson’s conservative Moderates, the Christian Democrats and the Liberal party, backed in parliament by their key ally the Sweden Democrats to give them a majority.