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German economic growth will slow in second half, ministry says

By Michael Nienaber

BERLIN (Reuters) - The German economy will lose steam in the second half of 2016 as weaker foreign demand causes industrial output to slow, the Finance Ministry said on Thursday, another sign that Europe's biggest economy is set for a slowdown.

Strong private consumption, higher state spending and rising construction activity helped the economy to grow by 0.7 percent in the first quarter and by 0.4 percent in the second.

"German economic growth was robust in the first half of the year," the Finance Ministry said in its monthly report. "But the latest economic data indicate a slowdown in economic momentum in the second half of the year."


Growth in industrial orders nearly halted in July and factory output and exports unexpectedly fell, suggesting manufacturing started the third quarter on a weak footing.

The ministry blamed sluggish foreign demand for low industrial activity, saying it expected subdued factory output for the rest of the year.

The economy will continue to grow, however, as private consumption is boosted by record-high employment and rising real wages and the government spends billions of euros to accommodate and integrate a record influx of migrants.

"The economic upswing remains intact," the ministry said.


In another positive sign for domestic demand, real wages rose by 2.3 percent on the year in the second quarter, the Federal Statistics Office said. Nominal wages increased by 2.4 percent as consumer prices edged up by 0.1 percent.

The rise was mainly driven by strong wage increases for workers in real estate, transport and logistics and catering .

Germany's vibrant domestic economic activity pushed up tax revenues for the federal government and 16 states by 4.1 percent in the first eight months of 2016, the ministry said. That is above the projected full-year rise of 3.0 percent.

A buoyant tax take is enabling Finance Minister Wolfgang Schaeuble to boost state spending on migrants, roads and digital infrastructure without taking on new debt, and so stick to his cherished goal of a balanced budget before next year's election.

The German government expects soaring private consumption, higher construction activity and increased state spending on migrants to help the economy to grow by 1.7 percent this year.

The Organisation for Economic Cooperation and Development (OECD) sees slower growth of 1.3 percent next year from 1.9 percent this year. Adjusted for working days, the OECD predicts German growth of 1.8 percent in 2016 and 1.5 percent in 2017.

(Reporting by Michael Nienaber, editing by Larry King)