Moderate German growth supports Euro Area economy in 2016
Germany, France and Italy account for about two-thirds of Euro Area gross domestic product (GDP) and in the second quarter of 2016, France and Italy stagnated while moderate German growth supported the single currency economy.
Eurostat reported on Friday that seasonally adjusted GDP rose by 0.3% in the Euro Area (EA19) and by 0.4% in the EU28 during the second quarter of 2016, compared with the previous quarter. In the first quarter of 2016, GDP grew by 0.6% and 0.5% respectively. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.6% in the Euro Area and by 1.8% in the EU28 in the second quarter of 2016, after +1.7% and +1.8% respectively in the previous quarter.
During the second quarter of 2016, GDP in the United States increased by 0.3% compared with the previous quarter (after +0.2% in the first quarter of 2016). Compared with the same quarter of the previous year, GDP grew by 1.2% (after +1.6% in the previous quarter).
Germany's GDP rose by 0.4% in the second quarter, compared with the first three months of the year, Destatis, the national statistics office said Friday in its first Q2 growth estimate. The French and Italian national offices reported zero growth while Spain grew at 0.7% and Slovakia expanded at a 0.9% pace — Ireland will report data next month.
Germany grew at a 0.7% rate in the first quarter. In a year-on-year comparison, second-quarter GDP surged by 3.1% (adjusted for price developments), marking the biggest jump in five years, Destatis said — adjusted for the exceptionally high calendar effect, Destatis said the GDP growth was 1.8% after 1.9% (unadjusted 1.5%) in the first quarter of 2016. Eurostat put the year-on-year growth at 1.7% in Q2.
In a separate press release on Friday, Destatis confirmed Germany's consumer price index rose by 0.4%, marking the third slight monthly increase in inflation this year.
The quarter-on-quarter comparison (after adjustments for price, seasonal and calendar variations) shows that positive contributions came especially from the positive balance of exports and imports. Exports were up while imports were slightly down compared with the first quarter of 2016. Both household final consumption expenditure and government final consumption expenditure supported growth, too. However, growth was slowed by weak gross capital formation (investment). After a strong first quarter, a decline was recorded especially in gross fixed capital formation in machinery and equipment and in construction.
Unemployment is at a 25-year low and German real wages are up 14% since 2007 while UK average inflation-adjusted earnings dipped by 10%.
Germany is running a surplus and tax cuts could further boost consumption.
Deutsche Welle reports that the Federation of German Industries, has calculated:
While the top tax rate in 1965 was reached at approximately twelve times the average income, the level today is at 1.9 times the average.
DW adds that the German Taxpayers' Federation says it is no coincidence that surveys show 81% of Germans feel their tax burden is too high. And if these 81% contrast their tax burden with public-sector cuts when it comes to roads and bridges, schools and teachers, judges, prosecutors and police officers, the parties in government should not be surprised if they lose more and more voters to other parties further to the left and right.
