Germany is often referred to as Europe’s powerhouse and with good reason. It is the largest European economy and the fifth biggest in the world measured by Gross Domestic Product (GDP). The latest numbers confirm its success.

The economy last year expanded by 1.9%, the best performance since 2011. The unemployment rate in the country is at a record low and the number of citizens in work is at its highest level since the Berlin Wall came down in 1989.

What to expect in 2017

This all sounds very positive, so does it suggest there are more rosy times to come for the German economy?

State spending contributed to the recent growth, rising by 4% in the most recent quarter. Notably, consumer spending, investment and construction activity all increased in the year.

The country’s economy clearly has good momentum, but the risks for Germany – and plenty of other countries – in the years ahead should not be underestimated.

The past few months have seen inflation creep up from rock-bottom levels; that could have an impact on the nation’s spending. That state spending figure is also likely to fall too.

Solving the puzzle

The bigger, and more obvious, risks are political. Close to home there is the UK’s decision to leave the EU. After the US and France, the UK is Germany’s biggest export market.

This year is going to be a period of trade negotiation. Neither side at the moment seems to know what that will look like, so uncertainty could impact business confidence.

The great unknown for many countries is the US. Like many nations, America is Germany’s biggest export partner. If President Trump follows through on pledges to put America first, limit imports and adopt an overall more protectionist stance, that’s obviously going to have an impact on major trading economies like Germany.

Growth was better than expected in 2016 for Germany, so it is better placed than many countries to navigate the uncertain political waters ahead. However, it is not immune to a slowdown due to the political upheavals we have seen. (DJ)

ECONOMIC  PREDICTION

Germany’s GDP growth could slow to 1.3% in 2017, according to investment bank UBS. It cites headwinds for consumers from higher inflation, weaker public spending growth and only moderate export growth without acceleration.

It says 2016 was a year when ‘many things went right’ such as low oil prices, fiscal stimulus and exceptionally low interest rates. UBS believes 2017 may not be so lucky.

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