German economy growing but consumer spending on the slide

City A.M. Reporter
FOREIGN demand kept Germany’s economy growing in the fourth quarter but consumer spending on cars and retail purchases has tailed off, the Bundesbank said yesterday.

A dispute among government coalition partners over whether the country can afford billions of euros in planned tax cuts was calmed yesterday.

Government members agreed to stop arguing in public and delay a decision on their scope and timing until at least May.

The Bundesbank’s signals about decelerating growth coincided with warnings from International Monetary Fund (IMF) officials that Europe’s recovery depended on continued support from fiscal and monetary policy.

“In view of further improving export expectations and increased orders in industrial sectors not directly linked to the automobile industry, the recovery process appears intact,” the Bundesbank said in a monthly report.

Its view that growth could have continued in the fourth quarter contrasts with an assessment by the country’s Federal Statistics Office last week that economic activity probably stagnated in the final months of last year.

The data showed that the economy contracted by a record five per cent for the year as a whole.

German chancellor Angela Merkel yesterday said tax relief would stimulate growth in Germany, which would in turn offset the lower tax take in the medium-term. She said: “We also need more growth stimulus for 2011, otherwise we will be concerned only with saving. In hopes of boosting the economy this year, the government has already passed a package of measures worth some €8.5bn aimed at tax relief for firms and families.