Germany Beats Forecasts with Strongest Growth in a Year

Germany has overshot analysts' expectations by posting its strongest rate of economic growth in more than a year following a rise in domestic private and public consumption.

Europe's largest economy expanded by 0.7%, whereas market consensus, pegged Germany to grow by 0.6% in the second quarter this year.

"Popping the corks ... The German economy has staged an impressive comeback in the second quarter of this year," said Carsten Brzeski, analyst at ING.

"Looking ahead, the German economy should settle down to a growth rate of around 0.4% q/q in the second half of the year.

"Such a growth path would be consistent with continued solid consumption driven by low unemployment, a further pick up of the US and UK economy and a soft landing of the Chinese economy."

Main Drivers for Growth

Germany posted its biggest quarterly rise since the first quarter of 2012 mainly due to a significant rise in domestic private and public consumption.

"The figures are unusually high... There are two reasons for this - first the catch-up effect in construction, which alone contributed 0.3 percentage points to growth," says Joerg Kraemer, analyst at Commerzbank.

"Secondly we've straightened out the dip in exports. In the winter half of the year exports shrank, which is very unusual for the German economy... As these special effects will wear off, we expect future growth to be more moderate.

"We expect growth in the coming two quarters of 0.2% and 0.3%. Germany will continue to outperform the eurozone."

Warning Ahead

While Germany is tipped to drag the eurozone out of a recession, analysts still warn that growth will be modest.

Eurozone GDP is only expected to rise by 0.2% in the second quarter this year.

"The Euro zone has been hauled out of recession and Germany has done the lion's share of that," said Andreas Scheurle, analyst at Dekabank.

"It was made possible by our generous consumers who have again spent more money but the state has also dug deeper into its pockets ... Exports have also provided a boost.

"But this rhythm can't be maintained. Growth will become more modest and in second half of the year we should see plus 0.3 to 0.4%."