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German household spending drives weaker-than-expected Q3 growth

Reuters logo Reuters 25/11/2021
The coronavirus disease (COVID-19) outbreak in Germany © Reuters/Arnd Wiegmann The coronavirus disease (COVID-19) outbreak in Germany

BERLIN (Reuters) -German household spending was the sole driver of a weaker-than-expected economic expansion in the third quarter, more than offsetting a drop in company investments and state consumption over the summer months, detailed data showed on Thursday.

Gross domestic product in Europe's largest economy grew by 1.7% quarter-on-quarter in adjusted terms from July to September, the Federal Statistics Office said. That fell short of a flash estimate of 1.8% published last month.

The data marked a slowdown in German growth from an upwardly revised expansion of 2% from April to June. The economy shrank by 1.9% on the quarter in the first three months of the year.

A 6.2% jump in consumer spending in July-September from the prior three months contributed 3 percentage points to the overall growth rate in the third quarter.

"This is due to catch-up effects in the service sector. Restaurants, bars and the hotel industry in particular benefited," VP Bank Group analyst Thomas Gitzel said.

But Gitzel added that persistent supply bottlenecks in manufacturing were holding back overall growth, which could be seen in weaker investment activity by companies in machinery and buildings in the third quarter.

State spending also fell on the quarter, further pushing down the headline GDP figure.

A jump in new coronavirus infections over the past weeks is now threatening to kick away Germany's last remaining pillar of growth in the final quarter.

"The consequences of the pandemic are causing a kind of stop-and-go growth," Gitzel said.

Separately, a survey by the GfK institute showed that the surge in coronavirus infections and unusually high inflation rates are weighing on German consumer morale, dampening business prospects for the upcoming Christmas shopping season.

(Reporting by Michael Nienaber, Editing by Maria Sheahan and Catherine Evans)

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