Robust capital investment powered German gross domestic product (GDP) to its strongest growth in 12 years in the first quarter of 2008, but economists warned Europe's largest economy could slow sharply in the months ahead.
The Federal Statistics Office confirmed that Europe's largest economy expanded by 1.5 percent quarter-on-quarter in the January-March period, in line with a preliminary estimate published in mid-May and the strongest rate since 1996.
A detailed breakdown of the data showed growth was driven by a broad range of domestic demand inputs, with gross capital investment and stock building contributing 0.7 percentage points each to the total, and private consumption 0.2 points.
However, economists cautioned that consumption was likely to weaken in the second quarter as high energy and food prices bite, and said the inventory build-up in the first three months of 2008 pointed to a drop-off in activity going forward.
"We believe that Q1 growth was a flash in the pan and the high level of stock building confirms this," said Jens-Oliver Niklasch at LBBW.
Also taking the shine off the GDP figures was a separate report from the GfK research group showing consumer morale was poised to deteriorate in June.
The euro fell more than half a cent from one-month highs against the dollar as the GfK report fanned worries about the health of the broader euro zone economy.
Growth was robust in the first quarter even though trade, the main driver of the German economy in recent years, subtracted 0.2 percentage points from the growth total.
The euro is not far off its record highs against the dollar and US growth is slowing, meaning the German economy will have to rely increasingly on domestic demand.
In the first quarter, domestic factors did their part, with construction activity adding 0.4 points to GDP and investments in plant and equipment contributing 0.3 points, a performance one economist dubbed "stunning".