German Economy’s Growth Slows
Tue, 05/15/2007 - 7:38am
FRANKFURT, Germany (AP) - The German economy's expansion slowed at the start of the year, the government said Tuesday, although not as much as expected, as a higher value-added tax curbed consumer spending.
The German government's Federal Statistics Office, Destatis, said that real gross domestic product in Europe's biggest economy rose 0.5 percent in the first three months of the year, after rising a revised 1 percent in the final quarter of 2006.
The growth, while slower, was better than the 0.3 percent that analysts polled by Dow Jones Newswires had expected. The fourth-quarter rate was revised upward from the 0.9 percent initially reported.
''There couldn't have been a better moment for the German government to increase taxes than at the beginning of 2007,'' UniCredit economist Alexander Koch said in a research note. ''Despite the unprecedented ... VAT hike, the German economy kept on growing at a solid pace in the first quarter.''
Germany raised its value-added tax to 19 percent from 16 percent on Jan. 1, an increase aimed largely at keeping the budget deficit in check.
''The cyclical dynamics of the German economy look solid for the time being,'' said Holger Schmieding, Bank of America's chief economist for Europe. ''Of course, risks abound. Externally, a combination of an even stronger euro, an even weaker U.S. economy and an even higher oil price could be a severe burden.''
The higher euro against the dollar can hurt manufacturers by making their goods more expensive in other markets, and Germany is the world's largest exporter.