Solid domestic demand fuels bumper growth in Germany

A construction worker is seen while working at a construction area in Munich downtown July 15, 2013.

Credit: Reuters/Michaela Rehle

By Alexandra Hudson

BERLIN | Fri Aug 23, 2013 5:20am EDT

BERLIN (Reuters) - Broad-based domestic demand drove the strongest German quarterly expansion in more than a year between April and June, fuelling optimism Europe's largest economy will outperform in 2013 and support the nascent euro zone recovery.

Details released on Friday showed a construction flurry after the harsh winter, firms' strong appetite for machines and equipment and healthy private consumption all underpinned a 0.7 percent quarterly rise in gross domestic product (GDP)

Analysts said Germany's bounce-back could prompt upwards revisions to 2013 growth forecasts and support the tentative recovery in the euro zone economy, which returned to growth in the second quarter after 18 months of contraction.

"The composition of the growth is very good. It is being driven more strongly from within, which is good for Germany and the euro zone," said economist Holger Sandte at Nordea. "It is also positive that firms are investing more in equipment and are not so hesitant anymore."

The data also confirmed an earlier flash estimate showing Germany's gross domestic product (GDP) was up 0.9 percent on the year in the second quarter.

Domestic demand added 0.5 percentage points to GDP in the quarter and foreign trade 0.2 percentage points.

"Growth is broadly supported - two-thirds comes from domestic demand, a third from trade... This could be the start of a long upturn for investment. Low interest rates and returning confidence provide a sound basis for this," said Christian Schulz at Berenberg Bank.

MILD SLOWDOWN FOR SECOND HALF

The strong second-quarter growth data, released a month before a federal election, will be welcome news for Chancellor Angela Merkel as she seeks a third term in the vote on September 22.

Her government expects growth of 0.5 percent in 2013, but Finance Minister Wolfgang Schaeuble said this week the year's growth could end up being as high as 0.7 percent.

While Europe's economic powerhouse steamed ahead during the early years of the euro zone crisis, it slowed last year and even contracted in the fourth quarter as exports languished and investment was sluggish.

But investments picked up significantly between April and June, largely due to weather-related catch-up effects after an unusually long and cold winter, while net trade also made a positive contribution to growth.

The Economy Ministry and the Bundesbank have cautioned that growth will probably be more moderate in the second half given that bumper second-quarter growth was partly due to those catch-up effects and Germany still faces a tough international environment.

However the labor market is still robust, supporting future domestic spending.

"Up to now, soft indicators released for the third quarter have been promising, indicating that the expected slowdown of the economy in the second half of the year should be mild," said ING economist Carsten Brzeski.

"In fact, the current growth mix should continue in the remainder of the year: decent consumption on the back of the strong labor market accompanied by a gradual export recovery."

(Reporting by Alexandra Hudson and Stephen Brown; Editing by Noah Barkin/Jeremy Gaunt)

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Osborne's Help Fuels £50m Estate Agency Deal

George Osborne's effort to stimulate the UK housing market is fuelling a flurry of corporate activity among estate agency owners, with one entrepreneur poised to reap a multimillion pound windfall from the sale of his business.

Sky News understands that Dale Norton, who established the Berkshire-based Romans Group in 1987, has decided to cash in by offloading the company to Bowmark Capital, a private equity group, for around £50m.

Bowmark has seen off competition from rival bidders including LDC and Inflexion and could conclude a takeover of Romans, which operates more than 20 branches and employs more than 350 people, within days.

The deal will trigger speculation that Bowmark will merge Romans with Leaders, a chain of letting agents in which it invested in 2010.

Analysts said that Bowmark would be able to reap significant cost savings by combining the two businesses.

One insider pointed out that the private equity group had grown Leaders from 42 to 72 branches through 29 separate acquisitions which it had then integrated during the last three years.

However, one person familiar with the deal said that a merger was "not on the cards" at the moment and that Romans would be an "independent acquisition" by Bowmark.

The transaction comes amid growing optimism about the state of parts of Britain's housing market as the Chancellor seeks to use a string of measures to accelerate a wider economic upturn.

Mr Osborne's Help to Buy scheme, which launched in April, has seen 10,000 first-time buyers sign up for state-sponsored financial support to buy new-build homes, triggering a surge in house builders' share prices.

Countrywide, an estate agency chain, has seen its shares soar since a flotation earlier this year, while Foxtons, a rival, is likely to announce its intention to list its shares later this month.

Although housing transaction volumes remain low by historical standards, figures published this weekend by the Halifax show that mortgages are now typically more affordable than at any time since 1999.

The second phase of the Help to Buy initiative is due to kick off early next year, and is proving to be more politically contentious.

It will enable lenders to use Government-backed guarantees to offer £130bn-worth of mortgages with smaller deposits of at least 5% on new and older properties.

The Chancellor is, though, being urged to abandon the scheme to prevent another housing bubble, with data published this month revealing that lending to first-time buyers has risen to its highest level since the beginning of the financial crisis.

The takeover of Romans will effectively be structured as a management buyout, with the existing executive team rolling over some of their stake into the new ownership structure.

The size of Mr Norton's shareholding is unclear, although insiders said he would crystallise "a considerable fortune" by selling the company he founded 26 years ago.

Bowmark declined to comment on Sunday.

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