Bloomberg News - German Investment Picks Up in Sign of Confidence

German investment and consumption rose last quarter in a sign of confidence in Europe’s largest economy.

Capital spending increased 1.5 percent and private consumption advanced 0.6 percent, while net trade was a drag on growth, the Federal Statistics Office in Wiesbaden said on Friday. Gross domestic product rose 0.3 percent in the first three months of the year after expanding 0.7 percent in the previous quarter, it said, confirming a May 13 estimate.

While the slowdown in German growth came just as the euro area’s recovery accelerated, the Bundesbank said that the nation’s economic expansion will continue in the coming months, supported by consumer spending. A gauge of business confidence to be published on Friday is forecast to remain close to a 10-month high even as ebbing momentum in manufacturing signal that the economy isn’t immune to risks from weaker global trade.

“The German economy is likely to continue to grow at a reasonable pace in 2015,” said Johannes Gareis, an economist at Natixis in Frankfurt. “The fundamentals look good, even if recent economic data suggest that the German engine lost some steam. The GDP reading gives hope that the wait-and-see attitude among firms fades, giving way for a buoyant outlook for investment.”

Construction investment rose 1.7 percent and government spending increased 0.7 percent, the statistics office report showed. A growth rate of 1.5 percent in imports outpaced exports at 0.8 percent.

Companies across Germany have shrugged off signs of moderating growth.

ThyssenKrupp AG, the country’s largest steelmaker, raised its earnings forecast after reporting second-quarter profit that beat analysts’ estimates. Continental AG, Europe’s second-biggest maker of car parts and tires, has boosted its 2015 sales forecast three times this year and said profitability will “comfortably” reach its target.

By contrast, investor confidence fell in May to the lowest level since December, while a gauge of manufacturing and services activity dropped to 52.8 from 54.1 in April, with factories’ export orders rising only “marginally.”

Business confidence probably also eased in May. The Ifo institute’s index of business climate fell to 108.3 from 108.6 in April, according to a Bloomberg survey. Munich-based Ifo will release that report at 10 a.m. Frankfurt time.

Germany’s economy is still set to outperform that of the euro area over the next two years. The European Commission predicts German growth of 1.9 percent in 2015 and 2 percent in 2016, compared with 1.5 percent and 1.9 percent in the single-currency bloc.

“The underlying momentum for the German economy remains solid,” said Anna Maria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. “The weakness in global trade in early 2015, persistent geopolitical uncertainty, together with heightened volatility on European financial markets, explain the decline in German business sentiment in May.”