Germany’s economy weakened at the start of the third quarter after a strong performance in the first half of the year, but indicators suggest its solid growth will continue, the finance ministry said yesterday.

Europe’s biggest economy is enjoying a consumer-led upswing, propelled by record-high employment, rising real wages and low borrowing costs – conditions that are likely to help Chancellor Angela Merkel win a fourth term in Sunday’s federal election.

The ministry, controlled by Merkel’s conservatives and their veteran lawmaker Wolfgang Schaeuble, said in its monthly report that the economy lost some momentum at the beginning of the third quarter.

“But recent economic data indicate that the solid upswing will continue also in the third quarter,” the ministry said, adding that business morale remained high and German exporters were expected to benefit from a global economic recovery.

The German economy grew 0.7 per cent on the quarter in the first three months of the year and 0.6 per cent from April to June, driven by increased household and state spending as well as higher investments in buildings and machinery.

Economic data in the past weeks had painted a mixed picture of the economy, with unemployment continuing to fall and the mood among German investors improving. But retail sales, industrial orders and manufacturing output disappointed in July.

The ministry said that the macroeconomic fundamentals remained favourable and domestic demand would continue to drive growth. The economic upturn is boosting tax income as more people join the labour market, shoppers spend and companies can increase their profits.

From January to August, tax revenues of the federal government and the 16 regional states rose 4.1 per cent year-on-year, the ministry said. That is slightly more than the projected rise of 3.9 per cent for the whole year.

Rising revenue has enabled Merkel’s government to spend more on roads and bridges, faster internet, social housing and integration of refugees, without taking on new debt.

This means Schaeuble can stick to his cherished but internationally criticised goal of a balanced budget.

The buoyant tax revenues also help Germany to push down its overall debt burden and reduce its debt issue plans for the rest of the year.

The Federal Statistics Office said yesterday the debt of all state levels fell to less than €2 trillion during the first half of the year.

The overall debt from federal government, regional states, municipalities and social security funds fell to €1.9778 trillion by the end of the first half of the year, it said.

That was roughly three per cent or €59.8 billion less compared with the same period last year. “All state levels were able to reduce their debt,” the office said.

Germany’s Federal Finance Agency said on Thursday it would reduce its planned debt issue volume in the fourth quarter by €3 billion to €35 billion, excluding linkers.

The debt agency said it would issue around €31 billion of capital market instruments and around €4 billion of money market instruments in the period from October to December.

“The originally planned  top-up auction of €3 billion on November 29, 2017 will be cancelled,” the agency said. It confirmed that two inflation-linked bonds would be auctioned in the final quarter of the year.

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