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Berlin / AFP
The German economy has shrugged off the shock election of Donald Trump as US president, with business confidence holding at a two-year high and consumption expected to rise in December.
“The economic upturn in Germany remains intact. The German economy seems to be unfazed by the election of Donald Trump as US President,” said the Munich-based Ifo economic institute in a statement on Thursday.
The Ifo’s headline business confidence index reached 110.4 points in November, unchanged from the October reading, and the highest level since April 2014.
Separately, a poll by market research firm GfK on consumer sentiments suggest that the mood will show an uptick in December — a good sign for retailers in the run up to Christmas.
While acknowledging that the German economy is currently “in a good shape”, analysts warned that challenges loom in 2017.
Commerzbank analyst Ralph Solveen said the “higher pace is unlikely to prove lasting” because foreign demand, which has picked up lately, would probably weaken as many emerging markets are still battling structural problems.
ING chief economist Carsten Brzeski also called for caution when interpreting the Ifo index, as a “slowdown in global trade should hinder economic growth” from living up “to its full potential in the period ahead”.
‘Less dynamic export prospects’
Trump’s taking of the White House has sent shockwaves through the global economy, with export-dependent economies particularly jittery as the populist president-elect has pledged to reverse free trade treaties.
This week, he promised to drop the Trans-Pacific Partnership—a vast agreement between 12 countries including Japan, Australia and Peru.
Although Trump has not spoken specifically about a planned free trade deal between the EU and the US, German Chancellor Angela Merkel admitted last week that the accord would now not be completed.
While the construction and wholesaling sectors reported optimism in the Ifo survey, manufacturing was more downbeat about the coming six months, “mainly due to less dynamic export prospects”.
Although the German economy was once heavily weighted towards exports, domestic consumption has in recent months become a main driver of growth.
With unemployment sinking to a record low and wages steadily rising, spending power has been rising in Europe’s biggest economy.
The arrival of almost 900,000 asylum seekers last year alone has also prompted the government to invest heavily in infrastructure for the newcomers.
On Thursday, federal statistics office Destatis confirmed that growth reached 0.2 percent in the third quarter, held up mainly by domestic consumption.
Domestic spending rose 0.4 percent and state expenditure by one percent compared to the preceding quarter, but gross investment and imports experienced negligible growth and exports fell by 0.4 percent.
“Foreign trade had a negative effect on gross domestic product (GDP) growth” on the order of 0.3 percentage points, Destatis said of the period that covers the immediate aftermath of the Brexit referendum in Britain, a major market for German goods.
Germany notched up economic growth of 1.7 percent in 2015, and the government predicts an expansion of 1.8 percent in 2016, before a drop to 1.4 percent in 2017.