05/13/2015 02:17 EDT | Updated 05/12/2016 05:59 EDT

German economy grows by disappointing 0.3 per cent in 1st quarter, domestic demand fuels rise

BERLIN - German growth slowed to 0.3 per cent in the first quarter, falling short of economists' expectations although consumer spending and investment in construction and equipment picked up.

Quarter-on-quarter growth in Europe's biggest economy slowed from 0.7 per cent in the October-December period, the Federal Statistical Office said Wednesday. Economists had forecast 0.5 per cent growth for the first quarter.

The statistical office said that domestic demand contributed most of the improvement, while foreign trade weighed down growth because an increase in imports outpaced export growth.

"The German economy is still benefiting from earlier reforms, which are now artificially extended by external tail winds," mainly caused by the European Central Bank's stimulus measures, ING-DiBa economist Carsten Brzeski said. Low unemployment, higher wages and near-zero interest rates have fueled long-sluggish consumer spending.

Brzeski argued that new structural reforms would be needed to push unemployment any lower and pointed to persistent questions over whether Germany, which has made keeping its budget balanced a priority, is investing enough.

"The strong performance of public finances is positive for the future of an aging economy and society but at the current level of interest rates might not be the choice to tackle weak investment," he said.