German Economy Expands At Fastest Pace In 5 Years

The German economy expanded at the fastest pace in five years in 2016 on robust domestic demand amid weak trade, data published by Destatis showed Thursday.

Gross domestic product grew 1.9 percent last year after expanding 1.7 percent in 2015. This was the fastest expansion since 2011, when the biggest euro area economy grew 3.7 percent.

In calendar-adjusted terms, the GDP growth rate was 1.8 percent versus 1.5 percent in 2015.

The expenditure-side breakdown of GDP showed that household consumption climbed 2 percent from the previous year and government spending by 4.2 percent. One of the reasons for this strong growth was that a large number of people seeking refuge immigrated.

As a result, final consumption expenditure, one of the pillars of economic growth, rose 2.5 percent. Capital formation also made some contribution. Gross fixed capital formation in construction advanced 3.1 percent and that in machinery and equipment climbed 1.7 percent.

GDP growth was damped by a reduction of inventories. The net trade too had a negative effect on economic growth.

The general government surplus was 0.6 percent of GDP in 2016, the third in a row.

The often controversially discussed refugee crisis and the European Central Bank's ultra-loose monetary policy turned out to be an economic blessing, artificially extending the long, positive cycle of the economy, Carsten Brzeski, an ING Bank economist, said.

The German economy urgently needs new impetus from new structural reforms and stronger public and private investment, Brzeski added.

In December, the Bundesbank raised the growth forecast for this year to 1.8 percent from 1.4 percent, citing a strong labor market and rising household incomes. The bank retained the projection for 2018 at 1.6 percent and predicted 1.5 percent expansion for 2019.