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Private consumption helps German economy to meager growth

People shop at a cash and carry market of Germany's biggest retailer Metro AG in the western German city of Sankt Augustin near Bonn March 1
People shop at a cash and carry market of Germany's biggest retailer Metro AG in the western German city of Sankt Augustin near Bonn March 1

By Sarah Marsh

BERLIN (Reuters) - Robust private consumption helped Germany eke out meager growth in the first quarter, compensating for declines in both exports and investment, and is likely to remain a pillar of support for Europe's largest economy this year.

Germany's gross domestic product (GDP) rose by 0.1 percent on the quarter and shrank by 1.4 percent on the year, final seasonally adjusted data from the Statistics Office confirmed.

Private consumption added 0.4 percentage points to GDP, while gross capital investment deducted 0.3 points. Foreign trade added 0.1 points as exports fell but imports dropped even more rapidly.

Separate data showed rising wages had German consumers feeling more inclined to spend than at any point since September 2007. Market research group GfK said its forward-looking consumer sentiment index, based on a survey of around 2,000 Germans, rose for the sixth straight month.

"Germany's consumers ride to the rescue," said Christian Schulz, economist at Berenberg Bank.

A more sanguine Carsten Brzeski at ING said Germans would still not "become a bunch of shopaholics" and spend wildly.

"This means ... this morning's data also hold an inconvenient truth ...without its exports, the German economy is currently only like a sports car without sixth gear," he said.

On Thursday Germany's DIHK Chambers of Commerce cut their growth forecast for this year to 0.3 percent from 0.7 percent, citing concerns that exports would pick up less strongly than expected.

Germany's economy, which grew strongly during the early years of the euro zone crisis but lost momentum last year, has not yet featured prominently in campaigning for September's national election.

But if conditions worsen significantly, it could become a headache for Chancellor Angela Merkel as she seeks a third term in office. Her cabinet forecasts 0.5 percent growth his year.

There are signs that even private consumption cannot be relied on for solid growth. The finance ministry's monthly report released on Friday showed the tax take rose 0.4 percent in April on the year but sales tax dropped by 7.3 percent.

But Germany is outperforming other euro zone countries, and recent data showed its industrial output and orders, as well as imports and exports, rose in March.

Data due at 0400 EDT is expected to show the mood among German companies stabilizing, with Ifo's business climate index forecast to inch up to 104.5 in May from 104.4 in the previous month.

(Additional reporting by Annika Breidthardt and Christiaan Hetzner; Editing by John Stonestreet)

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