German economy grows at fastest rate in five years

By Michael Nienaber and Joseph Nasr

BERLIN (Reuters) - The German economy, the major driver of euro zone growth, expanded by 1.9 percent in 2016, the strongest rate in five years, a preliminary estimate from the Federal Statistics Office showed on Thursday.

Europe's largest economy is benefiting from rising private consumption and increased state spending on refugees, compensating for a weaker contribution from trade amid sluggish demand from major trading partners and emerging markets.

Economists polled by Reuters had expected growth in gross domestic product (GDP) of 1.8 percent for 2016 after an expansion rate of 1.7 percent in the previous year. The growth rate of 1.9 percent matched the highest forecast in the poll.

The Statistics Office said it estimated growth was around 0.5 percent for the fourth quarter.

"The German economy in 2016 once again defied an entire series of downside risks, thanks to strong domestic demand," said ING economist Carsten Brzeski, adding that Germany's biggest risk now was complacency.

"The economy urgently needs new impetus from new structural reforms and stronger public and private investment. It is very unlikely that it will get any of these before the elections," he said.

Germany goes to the polls for a federal election in September.

A breakdown of the 2016 GDP figures showed private consumption rose by an adjusted 2.0 percent on the year, contributing 1.1 percentage points to the overall 2016 growth rate.

State spending jumped by 4.2 percent after a rise of 2.7 percent in 2015. The increased state spending added 0.8 percentage points to the overall growth rate.

Investment in machinery and equipment contributed 0.1 percentage points while construction added 0.3 points. As exports rose less strongly than imports, net foreign trade subtracted 0.1 percentage point from the overall growth rate.

Germany's Ifo economic institute said last month the economy will rebound more strongly than previously expected in the fourth quarter and this growth momentum will carry through into 2017.

(Writing by Paul Carrel Editing by Jeremy Gaunt)