Germany’s economy grew at its fastest rate in three years between January and March.
Strong investment and consumers spending more freely meant gross domestic product rose by a seasonally-adjusted 0.8 percent from the previous quarter. Year-on-year it expanded by 2.5 percent.
It was very much driven by domestic demand as export growth slowed.
And a fall in business confidence in the latest surveys by the Ifo research institution signalled the second quarter will not be so vigorous.
Ifo economist Klaus Wohlrabe said they “expect stable growth in the coming quarters”.
He pointed out that future government decisions on things like retirement age and the minimum wage “will have a medium term effect on the German economy, which means we’ll have to wait till next year to see that those effects are”.
German growth at the start of the year was helped by milder than usual winter weather which brought forward the usual spring upturn.
Even though companies were less positive about current business and the near term outlook, Germany remains the growth engine of eurozone economy.
Wohlrabe said Ifo is sticking to his forecast of 0.3 percent GDP growth for the second quarter, adding the country’s economy was dealing well with the relatively strong euro and would not directly benefit further from another rate cut by European Central Bank.
The surveys show German exporters are surprisingly confident about their ability to sell to other strong markets overseas if trade with Russia is further impacted by sanctions over Ukraine, Wohlrabe said.
The fall in Ifo’s business sentiment indicator for May reflected concern about the stand-off with Moscow over Ukraine, but Wohlrabe pointed out exporters and the auto industry in particular were upbeat.
“There are other markets where German companies are strong. German exporters are flexible,” he said. “The auto sector’s expectations have really taken off.”