Roundup: German economy expands in 2015, but faces risks ahead

The German economy expanded by 1.7 percent in 2015, its growth accelerating slightly, official data showed on Thursday.

Economists, however, warned that it was not yet time to celebrate, as the growth was mainly driven by consumption, while investment and exports, another two key engines, remained subdued.

"The economic situation in Germany was characterized by solid and steady growth in 2015," said German federal statistics office Destatis in a statement, referring to consumption as "the main driving force" for growth.

In 2015, German households spent 1.9 percent more on consumption than in 2014. Government spending also rose by 2.8 percent.

"The German economy has once again defied many external headwinds and performed another solid growth year in 2015," said Carsten Brzeski, chief economist at ING-DiBa bank.

Germany has the most stable labor market in the European Union. In 2015, 43 million people living in Germany were in employment, the highest level in German history. This, together with rising wages, falling energy prices, historically low interest rates and a moderate increase of prices, prompted Germans to open their wallets, offsetting stalled investment and weak foreign trade.

The German economy ministry said in its January monthly report that private consumption would continue to support the economy in the new year.

This trend, however, is not sustainable, according to the Federation of German Industries (BDI). Its president Ulrich Grillo said on Wednesday that the German economy was vulnerable, despite being robust.

Both public and private investment should be boosted, he said.

According to Destatis, investment contributed 0.3 percentage point to the economic growth in 2015, while private consumption alone contributed 1.0 percentage point. Net exports also contributed only 0.2 percentage point to the growth as the increase of imports outstripped that of exports.

"Any celebrations and self-adulations should remain extremely modest," said Brzeski. He expected Europe's biggest economy to continue a "two-speeded recovery" in 2016, with strong consumption and services on the one hand, and sluggish industrial production and exports on the other.

"Without any new structural reforms and investments, it is hard to see any sharp acceleration of the economy any time soon," he warned.

German economists and companies consider the low investment as a major challenge for the German economy. They urged the government to take measures to stimulate investment, especially in digital and transport infrastructure.

In 2015, the general government, including federal, state governments and social security funds, recorded a surplus of 16.4 billion euros (about 17.9 billion U.S. dollars). It was the second consecutive year when the German public sector experienced a budget surplus, according to Destatis.

"While initially this additional fiscal room for maneuver will be used as a buffer for the refugee costs, it is obviously also grist to the mills of proponents for more public investment," Brzeski said. Endit