Germany's economic ministry sceptical about country’s growth in near term

The office of Germany’s Economy Ministery remained pessimistic about the country’s growth in the coming quarters, even after the country's GDP kicked off on a positive note in the second quarter of 2016.

In its monthly report, the office of economic ministry mentioned that the European economy started off on a solid growth path but the external environment remained tough, improving only gradually.

For 2016 as a whole, the government expects gross domestic product (GDP) to expand by 1.7 percent, at par with the corresponding figure of last year, when the growth was driven mainly by soaring household expenditure and higher state spending.

The purchasing power of German consumers is currently being boosted by record high employment, rising real wages, rock-bottom borrowing costs and nearly stable prices.

In May, harmonized consumer prices compared with other European countries (HICP) remained unchanged on the year after falling by 0.3 percent in April, the Federal Statistics Office said on Friday, confirming preliminary estimates.

"After the positive start to 2016, German economic growth is likely to slow somewhat in the second quarter, not least because the spring recovery in construction is likely to be less pronounced than usual after the mild winter," the ministry added.

Market participants expect unemployment to rise in the region next year when a growing number of asylum seekers will enter the labor market. According to the ministry report, Germany had experienced a strong influx of refugees in the recent past, which had only a moderate impact on the labor market. This is expected to change, however.

The government plans to spend nearly 10 billion euros (USD11.3 billion) this year on supporting and integrating a record influx of more than 1 million migrants who arrived in Germany last year alone. Berlin also aims to spend more than 6 billion euros on combating the causes of migration from the Middle East and elsewhere. Meanwhile, the total sum of some 16 billion euros is expected to rise in coming years, with Berlin planning to spend 93.6 billion euros overall by 2020 while keeping a balanced budget.