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Exports keep Germany economic growth strong

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Exports keep Germany economic growth strong

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Trade was the biggest factor in Germany’s economy growing by 0.4 percent between April and June. That was less than the 0.7 percent growth achieved in the first quarter.

Exports rose 1.2 percent while imports slipped 0.1 percent.

Growth would have been stronger but for industry spending less on new plant and equipment – down 2.1 percent from the previous quarter.

Surveys show companies remain cautious about future demand.

Private consumption was another positive – up 0.2 percent during the the second quarter compared to the first three months of the year.

Given the current low inflation, low interest rates, low unemployment and higher wages analysts say consumer spending should continue to be a driving force for growth by Europe’s biggest economy.

In addition state spending increased as the authorities paid for accommodation and integration costs for a record influx of migrants.

How to spend the budget surplus

Germany’s solid economic growth has generated a record budget surplus, fueling a debate within government about whether the country should use its spare revenue to cut taxes or increase spending.

Between January and June the budjet surplus reached 18.5 billion euros – 1.2 percent of gross domestic product (GDP) – the highest since current records began with the country’s reunification in 1990.

The International Monetary Fund and other eurozone governments have urged Berlin to hike investment in education and infrastructure, to help boost the region’s anaemic growth rate.

“The economy’s Achilles’ heel … remains the lack of new investment,” ING Bank economist Carsten Brzeski said. “To kick-start investment in an ageing economy, some government support is needed.”

Government at odds

Chancellor Angela Merkel’s government remains at odds over what to do with the extra money.

The Social Democrats, junior partner in the ruling coalition, advocate more investment on education, housing and social integration, while Merkel’s conservatives want to slash income taxes for families.

“We must have the courage to give citizens real tax relief and reward the working people,” said Hans Michelbach, budget expert in the conservative CDU/CSU parliamentary group.

A Finance Ministry spokesman said it was too early to speculate or draw conclusions on the basis of the first six months’ data.

“We’ll have the final figures only at the end of the year. We’ll have to wait and see how things develop,” he added.

A Economy Ministry spokeswoman said the solid figures created room for investment in important areas such as digital infrastructure.

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