BERLIN - The German economy grew by a solid 2.5 percent last year, helped by strong exports, but a downbeat survey of investor confidence pointed to clouds on the horizon for Europe's biggest economy.
The preliminary 2007 growth figure, released Tuesday by the Federal Statistics Office, compared with the previous year's increase of 2.9 percent in gross domestic product — Germany's best performance since 2000.
The Federal Statistics Office also said that Germany balanced its budget last year, eliminating a budget deficit that ran at 1.6 percent in 2006 and in previous years breached a European Union-mandated limit of 3 percent of GDP.
The growth estimate for 2007 was in line with economists' forecasts, and was slightly better than the government's prediction of 2.4 percent.
The statistics office said German exports, a traditional strong point, grew by 8.3 percent last year and accounted for more than half of the growth in GDP.
The export growth translated into GDP growth of 1.4 percent. Domestic stimuli — above all companies' investment in equipment — grew by 8.4 percent, contributing another percentage point to GDP, the office said.
Growth expectations last year initially were clouded by the government's move to raise value-added tax from 16 to 19 percent on Jan. 1, 2007 — a decision that was aimed at keeping the budget deficit in check.
The economy emerged unscathed and the government managed to balance its budget for the first time since 2000, when it was helped by revenue from the auction of new-generation mobile phone licenses.
Still, private consumption declined by 0.3 percent last year, the Federal Statistics Office said.
"Net exports continued to be a reliable and the most important growth contributor last year," said Alexander Koch, vice president and economist with UniCredit Markets and Investment Banking.
"The German export sector benefited disproportionately from strong global demand and defended its title as world champion in merchandise exports for the fifth consecutive year, ahead of China," he noted.
A separate survey of investor confidence Tuesday underlined expectations of a bumpier ride in 2008. The ZEW institute said its monthly survey dropped to minus 41.6 points from minus 37.2 in December — worse than the minus 40 economists had forecast.
"The largest risk for the development of the German economy is the danger of a recession in the United States following the financial market crisis," ZEW said in a statement. "Together with a strong euro it might undermine exports."
Economy Minister Michael Glos has said that he plans to reduce the government's 2008 growth forecast of 2 percent, although he has not specified a new figure.
On Tuesday, he described the 2007 figures as "a solid basis for the continuation of the upswing this year."
Fourth-quarter growth figures will not be released until next month, but the statistics office tentatively estimated growth at 0.25 percent — down from a third-quarter figure of 0.7 percent.
"The recent downward trend in business expectations clearly points to soft growth dynamic also at the beginning of 2008," Koch said.
"However, we still rate the chances for an abrupt end to the economic upswing as very low," he added. "We maintain our forecast of another year of respectable growth for 2008."
Holger Schmieding, Bank of America's chief European economist, predicted "a soft start and a stronger finish" for the economy in 2008.
In the early part of the year, he said, high oil and food prices likely will dampen consumer spending, while "global uncertainties, much slower growth in the U.S. and the U.K. and the strong euro will dampen export growth and the readiness to invest at home."
He also pointed to a potential risk from possible government moves to expand minimum wages to new sectors, cautioning that "investment could lose momentum and the pace of job creation could slow down seriously."
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