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Germany expects current account surplus to shrink slightly

By Michael Nienaber

By Michael Nienaber

BERLIN (Reuters) - Germany's record current account surplus is likely to shrink this year because a slowdown in global trade is dampening export growth while strong domestic demand is pushing up imports, Economy Minister Sigmar Gabriel said on Thursday.

The European Commission and the International Monetary Fund (IMF) have repeatedly urged Germany to take advantage of record-low borrowing costs and increase investment as a measure to reduce the country's large trade and current account surpluses.

The United States last year flagged concerns over economic policies in Germany and put Europe's biggest economy on a new monitoring list together with other countries such as China and Japan, mostly due to their large surpluses.

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Chancellor Angela Merkel's government has reacted to the criticism and boosted domestic demand by introducing a national minimum wage, increasing state spending on infrastructure and accommodating and integrating a record influx of refugees.

"German exports will increase rather moderately whereas imports will grow more strongly due to robust domestic demand," Gabriel told the Bundestag (lower house of parliament).

"The current account surplus will therefore shrink slightly - that will please the European Commission," he added.

Germany achieved a record trade surplus of 244.31 billion euros ($262.10 billion) in 2015 due to the relatively strong competitiveness of its exporters.

The wider current account surplus has almost doubled over the past five years to reach 252.58 billion euros in 2015. This also reflects how Germans remain a nation of savers despite the European Central Bank's policy of zero interest rates.

The surplus figures for 2016 have not been released yet, but the trend seen from January until November suggests that the surplus likely remained high.

The Bundesbank has said it expected the current account balanceas a percentage of nominal GDP to rise to 8.9 percent in 2016 and shrink to 8.1 percent in 2017.

In his last speech as economy minister before becoming foreign minister as part of a cabinet reshuffle ahead of a federal election in September, Gabriel said the German economy was in solid shape thanks to the robust labor market.

The economy grew by 1.9 percent in 2016, the strongest rate in half a decade, helped by higher household and state spending. The government expects the upturn to continue in 2017, albeit at a slower pace of 1.4 percent.

In a sign that shoppers remain upbeat despite increased political uncertainties and an Islamist militant attack in Berlin, the mood among German consumers improved further heading into February, a survey showed on Thursday.

The slightly stronger-than-expected data, published by the GfK research group, gave reassurance that private consumption will continue to propel growth in 2017.

But Gabriel warned against taking the economic upswing for granted and urged the government to use its budget surplus of around 6 billion euros ($6.44 billion) to increase investment in infrastructure and education.

He linked his push for more state spending with a warning that euroskeptic populism was posing a "huge danger" for growth and stability.

"The French presidential elections this spring are bitter, fateful elections for Europe," Gabriel said.

"After Brexit last year, if the enemies of Europe manage again in the Netherlands or in France to get results then we face the threat that the largest civilization project of the 20th century, namely the European Union, could fall apart."

(Additional reporting by Michelle Martin; writing by Michael Nienaber; editing by Mark Heinrich)

 
 
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