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Powerful growth in Germany fuels calls to share the wealth

Strong growth data in Germany came as welcome news Thursday for politicians haggling over spending and unions battling for more pay, although observers warn the good times can't last forever.

Gross domestic product in Europe’s top economy grew by 2.2 percent in 2017, the fastest rate since 2011, according to federal statistics authority Destatis.

The performance, in line with forecasts from leading economic think-tanks and the OECD, was driven by a sharp pick-up in growth in investments and exports.

At the same time, expansion in private and government consumption slowed compared with 2016.

Overall, growth was almost one percentage point higher than the 1.3-percent average recorded over the past 10 years.

Germany also notched up a record government budget surplus of 1.2 percent of GDP, Destatis said.

It was “a strong performance by an economy firing on all cylinders,” commented ING Diba bank economist Carsten Brzeski, arguing that the same factors that have favoured the economy will stay in place over the coming year.

Defying fears of a new era of protectionism after the US election of Donald Trump, exports grew by 4.7 percent in 2017, compared with 2.6 percent the previous year.

Meanwhile, historic low interest rates set by the European Central Bank, a euro that has not strengthened against other currencies in step with the continent’s economic recovery, high levels of employment and a broad-based upturn across the 19-nation eurozone all favour continued expansion for Germany.

But the picture is not entirely rosy for Berlin, Brzeski warned.

“Strong growth performance has led to reform complacency. Under the surface of strong growth, deficiencies in areas like digitalisation, services and education have emerged,” he said.

“The next government still has the unique opportunity to tackle these challenges in good times and not wait until the bad times have started.”

– How to spend it –

As the statisticians unveiled the nation’s economic performance in Berlin’s government quarter, Germany’s leading politicians gathered in the Social Democratic Party (SPD) headquarters across town.

Chancellor Angela Merkel’s conservatives are making a last-ditch attempt to strike a coalition deal with the centre-left SPD — a prospect greeted with reluctance on both sides after four years sharing power cost both parties dearly in September elections.

Nevertheless, politicians’ mouths are watering at the prospect of having billions of euros of additional cash to pay for tax cuts, public spending or increased investment.

Over four days of talks since Sunday, the negotiators have racked up a wishlist totalling some 100 billion euros ($119.5 billion) for the coming four years, newspaper Rheinische Post reported Wednesday.

But many of those hopes could be dashed Thursday, as the finance ministry calculates that just 45 billion euros will be available in federal coffers.

It would be a “tough day” of talks, Merkel told reporters as she arrived, vowing to “work constructively to find the necessary compromises”.

Not to be left out, the powerful metalworkers’ union IG Metall has taken to the streets with a series of “warning strikes” this week, demanding bosses grant them a six-percent pay rise and the option to switch to a 28-hour week for up to two years.

There has been little sign of movement from employers so far, who have labelled the workers’ demands illegal and threatened to sue to prevent further industrial action.

Employee representatives and company leaders will return to the negotiating table Thursday afternoon, with longer, more devastating strikes on the cards if talks go badly.

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