Europe News

German growth to slow after strong first quarter

German economic growth will slow in the second quarter after an unusually mild winter gave Europe's largest economy a boost in the first three months of 2014, the Finance Ministry monthly report said on Tuesday.

The ministry said recent data suggested Germany had put in a "very strong" performance between January and March, adding that positive impetus likely came from industrial expansion and construction activity, which benefited from the mild winter.

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"Due to the weather-related surge in economic activity in the first quarter, the seasonally-adjusted figure for the following quarter will be weaker," the ministry said.

"But this technical effect should not be interpreted as a sign the economic pace slowing," the ministry said, adding that the upward trend of 'hard' economic data and optimism among firms about the future pointed to ongoing economic expansion.

Recent data has shown industrial orders and output rising while the private sector is expanding. Though the mood among investors and businesses has worsened as the Ukraine crisis wears on, it remains relatively upbeat.

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The ministry said recent data gave it reason to believe the economy was experiencing an upturn that would become increasingly broad-based during the course of the year.

The government expects growth of 1.8 percent this year thanks largely to a strong increase in private consumption as consumers benefit from a strong labour market, decent wages and moderate inflation while low interest rates discourage saving.

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Economists polled by Reuters expect the economy grew by 0.6 percent in the first three months of this year and would grow by 0.4 percent in the second quarter.

The finance ministry expects inflation to remain moderate, saying consumer prices would increase by 1.4 percent this year and by 1.9 percent next year.

"There are no discernible deflation risks," it said.

Germany's tax revenues increased by 7.2 percent on the year to 55.36 billion euros in March, helped by increased take from income tax and sales tax, the ministry said.

In the first quarter, tax revenues amounted to around 140 billion euros, 3.7 percent higher than during the same period a year ago.

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