German GDP growth jumps past forecasts in first quarter

Gross domestic product in the euro area's largest economy expanded at a 0.7% quarter-on-quarter clip in the first three months of 2016, according to the country's statistics office.

That followed growth of 0.3% in the final quarter of 2015 and was higher than the 0.6% which economists had penciled in.

In comparison to a year ago German GDP grew by 1.6%, up from the 1.3% clip seen at the tail-end of 2015.

No break-down of the figures was available in the preliminary data but the statistics office indicated household and government spending were particularly strong, alongside another increase in capital expenditures in construction.

"This would be the second quarter in a row that building activity has added a big boost to overall investment, pointing to risk of mean-reversion in the second quarter.

"The key question is whether this marks the beginning of a sustained upturn. We doubt it. The chart shows that the PMI has weakened recently, consistent with the message from the IFO. We think the Q2 story will be the inverse of Q1. Domestic demand will slow, but net exports likely will rebound slightly. Overall we think quarter-on-quarter growth will fall back to about 0.2%-to-0.3%," Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics said in a research note sent to clients.

"Looking at the so far available G7 data shows that Germany even outpaced its peers. It is true that special circumstances, such as the mild winter weather (and hence construction), additionally boosted GDP growth. However, such fault-finding misses the point. Even if the weather god had not been on our side the recovery would have gathered pace. The German economy is in the midst of a regime change towards more domestic demand," was the verdict from Andreas Rees, chief German economist at UniCredit Research.