Germany's economy in surprise Q1 recovery

Growth in the construction and auto industries helped the German economy make a stronger start to the year than had been expected, newly published data has revealed, but commentators have warned that it will not be enough to snap the economy out of its wider malaise.

Data published by the federal statistics agency showed there was a 2.1-percent rise in overall output in February, following the 1.3-percent rise in January, which was well ahead of the 0.3 percent that had been predicted by a poll of economists carried out by Reuters.

Unseasonably dry weather helped the construction sector grow by 7.9 percent, and an easing of pressure on energy prices led to a 5.7-percent growth in Germany's vital car-making industry, and a 4.6-percent rise in the chemicals sector.

But with overall production still 4.9 percent lower than it was 12 months ago, and almost 8 percent down from its pre-pandemic levels, the wider outlook remains pessimistic.

Factors including falling exports to China contributed to an overall German economic shrinkage last year of 0.3 percent, making Europe's economic heart the most poorly performing of any major developed country.

"The increase in production in February has increased the chances that the German economy will not shrink again in the first quarter," Ralph Solveen, deputy head of economic research at Commerzbank, told the Financial Times newspaper. However, he added that "production is likely to stagnate at best "in the coming months.

Analysis of the latest figures on the website of Netherlands financial services group ING said "as much as today's industrial data is a balm for the German economic soul, this is not yet the start of a significant recovery".

It observed that expected interest rate cuts "anticipating the upcoming European Central Bank rate cuts, lower gas and electricity prices, and the resilience of the US economy should bring more relief to German industry over the coming months".

Wider global issues and structural challenges posed by things such as the green transition "will not disappear overnight".

Previously, the Euronews website had quoted the twice-yearly analysis of the country's economic performance by five of Germany's top research institutes that described the economy as "ailing", with a pessimistic outlook.

"An economic weakness that lasted until the end is accompanied by dwindling growth forces," the report said. "Economic and structural factors overlap in the sluggish overall economic development. Although a recovery is likely to begin in the spring, the overall momentum will not be too great."