German economy slows more than expected in first quarter as trade drags

By Michelle Martin

BERLIN (Reuters) – German growth slowed more than expected in the first quarter of 2015 as foreign trade weighed on Europe’s largest economy.

The economy grew by 0.3 percent on the quarter between January and March after pulling off a 0.7 percent expansion in the final three months of 2014, preliminary data from the Federal Statistics Office showed on Wednesday.

That undershot the consensus forecast in a Reuters poll for 0.5 percent growth and was far weaker than in neighboring France, where the economy expanded by 0.6 percent on the quarter, its strongest rate in two years.

“Weak global trade is hitting German industry – an export heavyweight – and if the consumers start refraining from spending too, overall economic growth will decline rapidly,” said Thomas Gitzel, chief economist at VP Bank.

“But there’s no reason to be miserable – the euro is weak and interest rates are low, both of which point to somewhat solid growth in the coming quarters,” he said.

The Statistics Office said public and private consumption, as well as investment in construction and equipment, had contributed positively to growth. Trade was a drag as imports rose more sharply than exports.

While Germany has been an export-oriented economy for much of the past decade, household spending is now the main growth driver as weakness in euro zone trading partners and international crises dampen foreign demand for German goods and services.

Unadjusted data showed the economy expanded by 1.1 percent on the year in early 2015, missing the Reuters consensus forecast for 1.2 percent growth.

In 2014 the economy expanded by 1.6 percent and it is widely expected to fare better this year. Last month Berlin raised its forecasts for German economic growth to 1.8 percent for this year and next as it took heart from rising employment, higher wages, cheap oil and the weak euro.

(Additional reporting by Caroline Copley; Editing by Noah Barkin)

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