The German economy defied global headwinds in 2015, as the combination of expansionary monetary policy and record employment fueled domestic consumption. These forces partially offset a downshift in the country’s exports, which stemmed from waning demand in emerging markets. Moderate growth is expected to continue this year on the strength of consumer spending and the continual shift away from emerging markets to recovering developed nations.[1].

Growing Slightly Above Potential

Germany’s gross domestic product (GDP) expanded 1.7% in 2015 after a gain of 1.6% the year before,[2] official data confirmed in February. That was in-line with the consensus estimate and slightly above the Eurozone average of 1.5%.[3]

“The economic situation in Germany was characterized by solid and continuous growth in 2015,” Germany’s Federal Statistics Office reported in a February 12 press release.[4]

Germany has outperformed the broader Eurozone economy by a wide margin since the financial crisis. According to an economist at ING, the German economy has contracted just three times in 27 quarters through the end of 2015.[5]

Moderate Growth to Continue

Germany’s GDP is forecast to grow 1.7% in 2016, according to separate forecasts by the International Monetary Fund[6] and German government.[7]

A strong labour market fueling consumer spending is expected to be the main catalyst for growth this year. Average wages rose in 2015 and are projected to accelerate a further 2.6% this year. This should lead to a nearly 2% rise in consumer spending in all of 2016, government forecasts show.

The combination of plunging oil prices and rock bottom interest rates are also positive developments for the consumer. Oil prices are projected to remain low throughout 2016. On the interest rate front, the European Central Bank has signaled its readiness to cut the already negative deposit rate even further should Eurozone growth and inflation continue to stall.[8]

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