Germany just avoids recession, but outlook brightens

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Germany just avoids recession, but outlook brightens

Germany just avoids recession, but outlook brightens
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Germany only just avoided falling into recession in the first three months of this year.

That was thanks to a rise in private consumption which compensated for declines in both exports and investment.

GDP grew by 0.1 percent, significantly less than the 0.3 percent that economists had forecast.

However German business morale did improve far more than expected in May.

It rebounded after two months of falls. That suggests Europe’s largest economy is slowly picking up speed after that sluggish first quarter.

The Munich-based Ifo economic think tank said on Friday its business climate index, based on a survey of some 7,000 firms, rose to 105.7 in May from 104.4 in April.

Ifo economist Klaus Wohlrabe expected the German economy to grow significantly more in the second quarter, saying construction activity, which was subdued during an extremely harsh winter, picked up “immensely” in May.

Underscoring how private consumption in particular is fuelling domestic growth, a new survey shows Germans now feel more inclined to spend than at any point since September 2007 – before the financial crisis.

Market research group GfK said its forward-looking consumer sentiment index, based on a survey of around 2,000 Germans, rose for the sixth straight month.

“Business sentiment is recovering, consumer sentiment is picking up and Germany has been spared a double dip recession by the skin of its teeth,” said David Brown at New View Economics.

“The German economy may be out of casualty… but a return to fuller health still needs a lot more care.”

And suggesting even private consumption cannot be relied on for solid growth, a finance ministry report released on Friday showed that, while the tax take rose 0.4 percent on the year in April, sales tax dropped by 7.3 percent.