May 24, 2018 / 7:06 AM / a year ago

UPDATE 1-Construction, consumption drive German growth in first quarter

* German economy grew by 0.3 pct q/q, 2.3 pct y/y

* Expansion solely driven by domestic economy

* Weaker exports holding back overall growth

* Stronger euro blamed for dip in trade

* Trade dispute with U.S. clouds outlook (Adds more data, analysts)

By Michael Nienaber

BERLIN, May 24 (Reuters) - Weaker exports held back German economic growth in the first quarter, which was driven solely by construction, company investments in machinery and equipment and household spending, data showed on Thursday.

The Federal Statistics Office confirmed its preliminary reading of a 0.3 percent quarterly expansion in the first three months of the year. On the year, gross domestic product grew by 2.3 percent in calendar- and price-adjusted terms.

“The economy has cooled down, but this doesn’t mean that the upswing has reached an end,” Stefan Kipar from BayernLB said, referring to the 0.6 percent growth in the previous quarter.

“It remains to be seen if trade can bounce back as a growth driver - especially in light of the trade dispute with the United States,” he said.

Exports fell 1.0 percent and imports 1.1 percent on the quarter, which resulted in net trade deducting 0.1 percentage points from overall growth, the data showed.

“The drop in exports, in particular, could be a first sign that the appreciation of the euro in 2017 has started to leave its mark on the economy,” ING’s Carsten Brzeski said.

Household consumption, a key pillar of support for Europe’s largest economy in recent years, rose by 0.4 percent, contributing 0.2 percentage points to the headline figure.

But in a sign that household spending could slow in the coming months, a GfK survey showed on Thursday that German consumer sentiment deteriorated further heading into June to reach the lowest level so far in 2018.

“Capital expenditures increased significantly at the beginning of the year,” the office said. Investments in machinery and equipment rose 1.2 percent while construction investment jumped by 2.1 percent.

German construction is thriving, thanks to a real estate boom, increased company investment in industrial buildings and higher state spending on roads, bridges, ports and railways .

The upswing in construction has been encouraged by the European Central Bank’s ultra-low interest rates, a growing urban population and high immigration over the past five years.

The data also showed that state consumption expenditure decreased for the first time in five years. The Economy Ministry has blamed this dip on the unusually long time it took political parties to build a coalition after last year’s election, a delay that led to less state spending in the first quarter.

The domestic economy added 0.4 percentage points to overall growth while net trade deducted 0.1 percentage points, the data showed. (Reporting by Michael Nienaber, editing by Paul Carrel, Larry King)

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