German 2007 Growth Buoyed by Trade, Investment

Strong trade and investment powered the German economy to its second straight year of robust growth in 2007, preliminary data showed on Tuesday, but Europe's largest economy is expected to slow this year.

Gross domestic product (GDP) grew 2.5 percent in 2007 despite weaker private consumption. However, this was down from 2.9 percent the previous year and the expansion slowed sharply in the final quarter of 2007.

Growth dropped to around a quarter of a percentage point in the last three months of the year from 0.7 percent in the July-September period.

A value-added tax rise and household anxiety about waning purchasing power hit consumer spending in 2007. Economists are looking for a rise in private spending to support the economy this year when the impetus from exports is expected to ease.

"Growth has passed its peak," said Sal. Oppenheim economist Ulrike Kastens. "Growth will be less dynamic in 2008. The same will be true for foreign trade -- I think there is hardly any chance we'll see growth there this year."

"A lot will depend on the development of private consumption in 2008. That's the pivotal issue," she added.

The economic expansion in 2007 was in line with the consensus forecast from a Reuters poll of economists.

Adjusted for working days, 2007 German growth was 2.6 percent, the Federal Statistics Office reported. The public sector budget was in balance last year, it added.

A breakdown of the 2007 figures showed net trade added 1.4 percentage points to growth, with gross capital investment adding 0.9 points. Private consumption made a negative contribution to growth of 0.2 percentage points.

"Once again growth rests on the shoulders of exports," DekaBank economist Andreas Scheuerle said of the 2007 data.

"Consumption was battered. The value-added tax increase is to blame for that. In the second half of the year, there were also price rises in energy and foodstuffs," he added.

Price Rises

Consumer prices rose at the strongest rate since the mid-1990s on average over the year in 2007, Statistics Office President Walter Radermacher told a news conference.

Households' concern about price rises has led consumers to hold down their spending. Germans' shopping plans are key to the performance of the overall economy as consumer spending accounts for more than half of Germany's gross domestic product (GDP).

A broad measure of retail sales fell 1.5 percent in November, painting a weak picture of consumer spending in the run-up to Christmas.

Industry has, by contrast, remained in solid shape. In positive news from Germany's corporate sector, cement maker HeidelbergCement said on Monday it expects solid profit growth in 2008.

But with exports expected to slow and consumer spending still weak, Economy Minister Michael Glos has said the government plans to revise down its official growth forecast for this year to just under 2 percent.

Deputy Economy Minister Walther Otremba told Reuters on Monday that caution was warranted about the outlook for Europe's biggest economy this year.

"Economic momentum will weaken somewhat but we are not worried that there will be a slump," he said, adding that the high level of oil prices and the strong euro were potential risks to growth.