Unexpected Growth

The country's gross domestic product (GDP) expanded by 1.5 percent compared to the previous quarter, according to preliminary data issued by the German statistics office on Thursday, May 15.

"The German economy proved itself to be very robust at the start of 2008 despite the increasing burdens," said a statement released by the office.

Economists polled by Reuters news agency had expected the GDP in Europe's largest economy to have expanded by only 0.7 percent. In the fourth quarter it grew 0.3 percent. This comes despite the global credit crunch, the high price of oil and the strong euro.

Driven by the power within

The growth was driven by an increase in investment by companies and a rise in domestic consumption, rather than any increase in exports. The statistics office will announce more details in two weeks.

Economists had predicted a slowdown in German economic growth this year with expansion rates dropping under the 2 percent mark, following 2.5 percent in 2006 and 2.9 percent in 2005. Many responded to Thursday's news with a more optimistic projection.

"That's a sensational figure," said Commerzbank analyst Matthias Rubisch. "The projections for this whole year will have to be revised upwards after this strong start. We could definitely achieve a two before the decimal point."

However, he also warned of a drop in growth in the spring quarter.

HSBC Trinkhaus expert Lothar Hessler made a similar prognosis.

"That is much stronger than expected," he said. "The question is whether there will be a setback now in spring. But even if economic performance stagnates in the remaining quarters of this year, we will end up with a growth rate of around two percent."

Sustainable growth or a flash in the pan?

Ulrike Kastens, of Sal. Oppenheim, was more cautious, sticking by her prediction of a 1.5 percent growth rate for this year, while conceding it could rise above this.

She attributed the good growth figures partly to a strong performance from the construction industry, which has been aided by the mild winter.

"As nice as it is, it is just a temporary effect," she said. "We have to bargain for it being a blip. In the second quarter we will see a correction of this positive result."

The positive economic news out of Germany also caused the euro to gain against the dollar, rising over the 1.55 mark on Thursday morning.