German Growth Fails to Meet Expectations

German gross domestic product (GDP) rose by 0.4 percent in the period from January to March, compared with the period from October to December, the federal statistics office Destatis calculated in preliminary data.

Destatis said that growth impulses came from both inside and outside Germany, which is the largest economy in the 12-country euro zone.

"In addition to foreign trade, private consumption and investment in equipment also contributed to the pick-up in the economy at the start of 2006," the statisticians said in a statement.

"The good sentiment of German businesses is increasingly being backed up by positive data," Economics Minister Michael Glos commented. "The economic upward movement will support the labor market recovery further."

Domestic growth surprises analysts

Norbert Braems of Sal. Oppenheim consultancy said the increase in consumer spending was especially surprising.

"All the indicators here did not look so good," he told Reuters. "Domestic demand will become more meaningful for economic growth and the net exports will be less dynamic, that would be the normal development."

Nevertheless, first-quarter growth did not quite meet expectations: analysts had been penciling in slightly stronger growth of 0.6 percent, and the German Institute for Economic Research forecast a 0.5-percent increase.

"This is a good start in the new year but still remains behind expectations," Sebastian Wanke of DekaBank told Reuters.

On a 12-month basis, however, German GDP expanded by 2.9 percent in the January-March period, the strongest rate of growth in six years, Destatis calculated.

That was largely due to calendar effects: given the late timing of the Easter holidays this year, there were three more working days in the first quarter of 2006 than the same period in 2005, the statisticians noted. On a calendar-adjusted basis, German first-quarter GDP expanded by 1.4 percent year-on-year.

Growth helps fill empty tax coffers

Some analysts have predicted higher growth if sluggish construction industry could make up for weather-related lows this spring.

"Things will definitely speed up in the second quarter when construction catches up," BHF Bank's Gerd Hassel told Reuters. "That means we can expect at least 1.5 percent growth for the entire year."

The German government has said it expects between 1.5 percent and 2.0 percent growth for 2006, which led finance experts Thursday to increase how much tax revenue the government can expect to 463.9 billion euros ($590 billion), 6.5 million euros more than their November forecast.