Faster German growth affirms euro-area pickup

Bloomberg

German economic growth accelerated to the fastest pace in a year last quarter, underpinning assessments by Mario Draghi and the European Commission that the region’s recovery is getting stronger.
The 0.6 percent expansion, up from 0.4 percent in the previous three months, was helped by a surge in investment, a slight increase in consumer spending and a pickup in exports. Sentiment surveys signal that Europe’s largest economy maintained momentum at the start of the second quarter.
Germany’s role as driver of economic growth in the 19-nation euro area was confirmed once again as some European Central Bank officials start to debate an eventual exit from stimulus. ECB President Draghi said that the region’s recovery has evolved into a “firming, broad-based upswing.” A day later, the European Union’s executive arm raised its prediction for growth this year.
German magazine Spiegel reported that the ECB wants to start signaling a policy shift from mid-year. It would lay out plans in the fall for a QE exit and reduce monthly bond buying in steps of 10 billion or 20 billion euros in early 2018, the magazine reported, without saying where it got the information.
“The ECB’s long-held position that the risks to the economic outlook are ‘skewed to the downside’ is becoming harder to defend,” economists at Capital Economics including Jennifer McKeown said in a note. “That said, while the ECB may be preparing to ease the pressure off the monetary policy accelerator, it is nowhere near ready to hit the brakes.”
The German first-quarter growth was in line with the median estimate in a Bloomberg survey and driven by both domestic demand and foreign trade. Mild winter weather bolstered construction and equipment spending surged, the statistics office said.
The Bundesbank has described sentiment in German manufacturing as “extraordinarily optimistic.” Business confidence rose to the strongest level in almost six years in April and a survey of purchasing managers signaled private-sector output remained close to the fastest since 2011.
“Confidence in the stability of the recovery is enormous,” said Jens Kramer, an economist at NordLB in Hanover. “Economic momentum is extremely robust and very broadly based.” Data showed euro-zone industrial production unexpectedly slipped 0.1 percent in March, though that was largely due to a weather-related drop in energy output. Year-on-year growth was 1.9 percent.