The German economy could lose some momentum in the second half of the year after powering ahead in the first six months, as household spending and industrial production are expected to shift into lower gear, the economy ministry said on Tuesday.
Record-high employment, rising real wages and ultra-low borrowing costs are driving a consumer-led upswing in Europe’s biggest economy that looks set to help Chancellor Angela Merkel win a fourth term in office in a federal election on Sept. 24.
“The German economy will continue to grow in the second half of the year. However, the dynamics are likely to be somewhat weaker,” the ministry said in its monthly report.
Private consumption will remain an important growth engine, the ministry said. But a somewhat clouded mood in the retail sector could point to a slight cooling in the third quarter after the strong second quarter, it added.
The report chimed with economic data published earlier this month that showed feeble domestic demand drove a surprise fall in industrial orders in July, while industrial production flatlined.
In addition, retail sales fell more than expected on the month in July and posted a less pronounced increase on the year than forecast, suggesting that household spending lost some momentum at the beginning of the third quarter.
The ministry said that overall business morale remained relatively high and companies continued to hire new staff. “But employment growth could be somewhat slower. Also, production in manufacturing and construction could expand rather moderately,” it added.
The German economy grew 0.7 percent on the quarter in the first three months of the year and 0.6 percent from April to June, driven by increased household and state spending as well as higher investments in buildings and machinery.
“The net contribution of foreign trade to overall economic growth was slightly positive in the first half of the year,” the ministry said, adding that the robust labor market was fueling domestic demand.
Positive impulses also came from the European Central Bank’s low interest rates and from slightly cheaper oil prices, it said.
The International Monetary Fund (IMF) expects the German economy to grow by 1.8 percent in 2017 and by 1.6 percent in 2018 in real terms. This would be slightly below the 1.9 percent it achieved in 2016, which was the strongest rate in five years.