The German economy grew modestly in the first quarter of the year, official data showed Tuesday, skirting a recession following a weak end to 2023.
Propelled by the construction sector and exports, the economy expanded by 0.2% in comparison with the previous three months, federal statistics agency Destatis said in preliminary figures.
Europe's top economy shrank 0.5% in the fourth quarter of 2023, Destatis said.
The revised figure was worse than its previous estimate that GDP fell by 0.3% in the quarter.
The higher-than-expected figure does not change the view shared by economists that structural weaknesses will limit Germany's recovery.
"Instead of an upturn, only narrow-gauge growth is in sight," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank.
Tuesday’s GDP data follows stronger sentiment indicators and a pick-up in activity since the start of the year, noted Carsten Brzeski, global head of macro at ING.
The improvement showed "the German economy can still grow after all," Brzeski said.
"Optimism has returned to the German economy," he added.
The German economy was the weakest among its large eurozone peers last year, as high energy costs, feeble global orders and record-high interest rates took their toll.
The statistics agency revised its estimates for the whole of 2023, suggesting the economy contracted only 0.2% over the year instead of 0.3%.
Although inflation is expected to ease this year, growth is forecast to remain relatively weak. Last week, the German government raised its economic growth forecast for this year to 0.3%, from 0.2% previously.
Private consumption is expected to contribute growth momentum as real wages are expected to rise in a resilient labor market.
Data from the statistics office showed on Tuesday that German retail sales rose more than expected in March, up 1.8% on the month, pointing to a recovery in consumption at the end of the quarter and boding well for the overall economy.
However, in the first quarter as a whole, there was a decline in household consumption, Destatis said in its GDP press release, without giving further details.
The increase reflected an improvement in the construction industry and in exports, it noted.
The rebound will, however, be limited by "structural weaknesses," Brzeski said.
"Besides the potential cyclical headwinds, Germany’s well-known structural weaknesses will not disappear overnight and will limit the pace of any rebound this year," he noted.
"Higher oil prices as a result of the military conflict between Iran and Israel, as well as the ongoing tensions in the Red Sea, are likely to weigh on industry and exports once again."
An increasing number of insolvencies could also weaken the labor market, Brzeski warned.
The anemic economic growth has caused only limited harm to the labor market.
The Federal Labour Office said on Tuesday that the number of unemployed grew by 10,000 in seasonally adjusted terms. Analysts polled by Reuters had expected that figure to rise by 9,000.
The seasonally adjusted jobless rate remained unchanged at 5.9%.
"Although the German economy has been struggling for two years, the situation on the labor market remains robust," said Daniel Terzenbach, from the Federal Labor Office, in the presentation of the data.
There were 701,000 job openings in April, 72,000 fewer than a year ago, the Federal Labour Office said, pointing to a slowdown in labor demand.
The labor market is an indicator that lags behind the broader economy.
"The recent positive macroeconomic data will, therefore, only be reflected in the labor market figures with a time lag," Deutsche Bank's economist and labor market expert Marc Schattenberg said.
