German GDP speeds up in Q4 but slowdown seen ahead

Germany's economy picked up in the last three months of 2016, driven by consumer spending, even as economists pointed to other indicators which hinted at weaker spending ahead.

Gross domestic product in the fourth quarter sped ahead at a 0.4% quarter-on-quarter clip, up from the 0.1% pace observed over the prior three months, according to a final reading from the Federal Office of Statistics.

That was as expected by economists and in-line with a preliminary estimate published on 14 February.

Over the whole of 2016, GDP in the euro area's largest economy expanded at a 1.8% pace - its fastest in five years - up from 1.7% in the year before.

Domestic spending was the main driver of growth, contributing 0.8 percentage points to the quarterly rate of GDP growth, while net trade (exports minus imports that is) subtracted 0.4 percentage points, Jennifer Mc.Keown, chief European economist at Capital Economics said.

Nevertheless, the negative contribution from foreign trade was mainly attributable to a large increase for imports and not weakness in exports.

Exports grew by 1.8% on the quarter while imports surged by 3.1%.

To take note of, Germany recorded a current account surplus worth 8.6% of GDP in the fourth quarter of 2016.

"Looking ahead, we expect German export growth to gain more pace, particularly if the euro continues to depreciate as we envisage," she said.

Unfortunately, that might be offset by weaker household consumption - as seen in GfK's consumer confidence gauge released on the same day - she cautioned.

Indeed, although consumer confidence remained at high levels, rising inflation and political risks "elsewhere" would see both sentiment and spending take a hit, she said.

Her forecast called for GDP growth to slow from 1.8% in 2016 to roughly 1.3% in 2017, with underlying inflation remaining subdued.

According to the Federal Office of Statistics, and in terms of quarterly rates of change, household consumption grew 0.3%, government outlays by 0.8%, gross fixed capital formation by 0.8% and domestic uses by 0.9%.

Olga Tschekassin and Tomasz Wieladek at Barclays Research appeared to be somewhat more upbeat, highlighting the German fiscal surplus of 0.8% of GDP in the fourth quarter - the highest since reunification.

Domestic demand would also continue to be supported in 2017 by the government's loose fiscal stance, they said.

However, the fog surrounding Brexit and US trade policy, as well as upcoming elections in the Netherlands, France, Germany would "harm" investment.

GDP was seen growing by 0.4% and 0.3% over the following two quarters, respectively, "albeit with upward pressure as surveys point to strong activity".