German Economy Surges, Biggest Gain in 23 Years

 

Germany's economy grew 2.2 percent in the second quarter, well above forecast and its biggest gain in 23 years, boding well for a first estimate of euro zone numbers later on Friday.

The surge led Economy Minister Rainer Bruederle to say growth of well above 2 percent was possible for the full year — above the government's official forecast of 1.4 percent but in line with the more upbeat end of analysts' expectations.

Getty Images The Victory Column in Berlin

The euro [EUR=X  1.2878    0.005  (+0.39%)   ] gained ground after the data and European stock markets rose on opening.

But analysts remain cautious about the pace of growth going forward as budget cuts kick in across Europe in the second half of this year.

"Looking ahead, it is almost needless to say that the current growth momentum is hardly sustainable in the coming months," said Carsten Brzeski, economist at ING Financial Markets.

"With the one-off impact from the construction sector and normalizing of export growth, German growth will return to more ordinary growth numbers," he added.

The Federal Statistics Office's preliminary quarter-on-quarter reading compared to a Reuters consensus forecast for a 1.3-percent expansion.

First-quarter growth was revised up to show growth of 0.5 percent, after being previously reported at 0.2 percent.

Year-on-year, the economy grew by 4.1 percent in the second quarter, the data showed.

This followed a revised 2.1 percent expansion in the January-March period and beat expectations for 2.4 percent growth year on year.

"Positive impulses ... came both from the domestic economy as well as from abroad," the Statistics Office said in a statement.

"The dynamics of investments and of exports had the biggest part in the upswing; but expenditure in private and state consumption also contributed to the growth of the GDP."

In other positive news from Germany, steelmaker ThyssenKrupp raised its outlook for this year after its third-quarter earnings beat estimates on the back of robust demand from the automotive and engineering sectors.

Preliminary euro zone economic growth data, due at 0900 GMT, are expected to show the euro zone expanded a slower 0.7 percent in the second quarter after 0.2 percent growth in the first three months of the year.