Corporate investment is set to lift German domestic demand in the second half of 2005 despite persistent weakness in household spending, the finance ministry said today.
Domestic demand has long been a weak link in Germany's economic recovery, but the ministry said tax data appeared to confirm signs of a tentative pickup in recent months.
"For the rest of this year, the trend in manufacturing orders in nominal terms points to a pickup in domestic demand, mainly driven by investment with continued impetus from abroad," the ministry said in its monthly report for August.
The improvement was reflected in tax revenues, which rose by 2.5 per cent in July compared with the same month a year earlier.
The ministry said sentiment among firms was clearly improving with the rise in manufacturing orders. The Ifo institute's closely watched gauge of German business confidence rose for a second month in July.
However, stubbornly high unemployment and the downward trend in average earnings were still crimping consumer spending, the ministry noted.
But there had been some positive signs in recent labour market data, with the seasonally adjusted jobless total dropping by 42,000 in July, it added.