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Robust consumption replacing exports as German growth engine
October 11, 2017 / 11:42 AM / 2 months ago

Robust consumption replacing exports as German growth engine

BERLIN, Oct 11 (Reuters) - Robust domestic consumption in Germany will translate into imports outstripping exports this year and next, the economy ministry said on Wednesday, predicting that trade will not contribute to growth.

The ministry said it expects Europe’s largest economy to expand by 2 percent this year, much more than a previous forecast of 1.5 percent and the strongest rate since 2011.

Trade made no contribution to output growth in 2015 and 2016 as private consumption, state spending and booming construction replaced exports as the main growth drivers.

This shift has been supported by low borrowing costs created by the European Central Bank, which is seeking to restore price stability in the euro zone with a massive bond-buying programme and low interest rates.

“Given the dynamic domestic demand, imports will grow somewhat stronger than exports in the years 2017 and 2018,” the ministry said in a statement presenting its updated forecasts.

“As such trade will, on balance, provide in this time frame absolutely no contribution to growth,” it added.

The ministry also raised its growth forecast for next year to 1.9 percent, up from 1.6 percent in April.

The ministry said consumer prices will rise by 1.8 percent this year and 1.6 percent in 2018, highlighting the uphill battle the ECB faces to nudge up the inflation rate in the single currency bloc to its target of just under 2 percent.

Germany faces weeks of uncertainty as Chancellor Angela Merkel seeks to form a new coalition government after an election last month that weakened her conservative party.

Economists say the main risks to the economy come from possible U.S. protectionist policies, Britain’s plan to leave the European Union, and geopolitical conflicts. (Reporting by Joseph Nasr; Editing by Catherine Evans)

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