German economy skirts recession, helped by construction and exports

By Maria Martinez

BERLIN (Reuters) - The German economy skirted a recession at the start of the year, growing more than expected thanks to the construction sector and exports, preliminary data showed on Tuesday.

The economy grew slightly in the first quarter, with gross domestic product rising 0.2% on the previous three-month period in adjusted terms.

Analysts polled by Reuters had forecast a 0.1% increase.

The higher than expected figure does not change the view of shared by economists that structural weaknesses will limit Germany's recovery.

"Instead of an upturn, only narrow-gauge growth is in sight," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank.

Tuesday’s GDP data follows stronger sentiment indicators and a pick-up in activity since the start of the year, noted Carsten Brzeski, global head of macro at ING.

"Besides the potential cyclical headwinds, Germany’s well-known structural weaknesses will not disappear overnight and will limit the pace of any rebound this year," Brzeski said.

The statistics office revised the data for the last quarter of last year to show a 0.5% contraction, rather than the fall of 0.3% that was previously reported.

The German economy, Europe's biggest, was the weakest among its large euro zone peers last year, as high energy costs, feeble global orders and record high interest rates took their toll.

Although inflation is expected to ease this year, growth is forecast to remain relatively weak. Last week the German government raised its economic growth forecast for this year to 0.3%, from 0.2% previously.

Private consumption is expected to contribute growth momentum as real wages are expected to rise in a resilient labour market.

Data from the statistics office showed on Tuesday that German retail sales rose more than expected in March, up 1.8% on the month, pointing to a recovery in consumption at the end of the quarter and boding well for the overall economy.

However, in the first quarter as a whole, there was a decline in household consumption, the statistics office said in its GDP press release, without giving further details.

JOBLESS RATE UNCHANGED

The anaemic economic growth has caused only limited harm to the labour market.

The Federal Labour Office said on Tuesday that the number of unemployed grew by 10,000 in seasonally adjusted terms. Analysts polled by Reuters had expected that figure to rise by 9,000.

The seasonally adjusted jobless rate remained unchanged at 5.9%.

"Although the German economy has been struggling for two years, the situation on the labour market remains robust," said Daniel Terzenbach, from the Federal Labour Office, in the presentation of the data.

There were 701,000 job openings in April, 72,000 fewer than a year ago, the Federal Labour Office said, pointing to a slowdown in labour demand.

The labour market is an indicator that lags behind the broader economy.

"The recent positive macroeconomic data will therefore only be reflected in the labour market figures with a time lag," Deutsche Bank's economist and labour market expert Marc Schattenberg said.

(Reporting by Maria Martinez; editing by Matthias Williams and Christina Fincher)