Press Release
2012-2-9

The Economic Situation in the Federal Republic of Germany in February 2012


In 2011, the German economy experienced another year of very strong growth. Whilst development in the first three quarters was extremely dynamic, macroeconomic performance weakened slightly in the final quarter [1]. This was mainly due to the uncertainty caused by the debt situation in a few countries, especially in the eurozone. In addition, growth in Europe and in other parts of the world was noticeably slower. However, there are already signs that the German economy is stabilising. These signs indicate that the period of weakness is only temporary and that the economy in Germany will soon regain speed. Despite the fact that it has been possible to take important political decisions in recent weeks and months regarding the stabilisation of the debt crisis in the eurozone, the risks for future economic development - including that of Germany - remain high. The determination of all eurozone countries to tackle their budgetary problems and competitive weaknesses thoroughly and actively will be crucial for a return to more dynamic growth in the whole of Europe. 

Restrained development in the fourth quarter of 2011 was linked to limited industrial activity. There was a marked drop in industrial production, especially in December, following what had already been a slow start. In the last quarter as a whole, the figure remained 2.2% lower than in the third quarter [2]. Turnover in industry revealed a decline in both domestic and foreign business while output in the construction industry proper in the final quarter held up well.

On account of restrained development in the global economy and especially of weaker economic development in Europe, it is not likely that any positive economic stimuli were generated by foreign trade in the fourth quarter of 2011. The nominal exports of goods dropped sharply in December in seasonally adjusted terms (-4.3%), which means that there was an overall decline of 1.1% for the fourth quarter.

The Germany economy will initially continue its quiet development at the beginning of this year. However, the tangible increase in new industrial orders in December (+1.7%) sends a positive signal, despite the slight overall weakening in the fourth quarter (-1.4%). Together with the improvement in the sentiment indicators, this suggests that the current period of weakness will soon end.

As in 2011, the development of domestic demand will have a crucial impact on economic activity in Germany. In view of fully utilised capacities, the companies are likely to invest in the replacement and expansion of their plant and equipment as the global economy gradually picks up speed again. Further to this, the ongoing positive consumer climate continues to indicate a stable development in consumer spending. It is true that retail turnover (excluding trade in vehicles) dropped slightly in the final quarter of 2011 (-0.7%). However, key factors affecting consumer spending remain favourable. This is particularly true of the positive developments on the labour market and in incomes. For example, the growth in employment continued unabated at the end of the year, despite the current cyclical weakness. In particular, the number of jobs subject to the payment of social security contributions is continuing to increase strongly. At the same time, the decline in seasonally-adjusted unemployment is continuing rapidly. Leading indicators are signalling brisk demand for labour in almost every sector at the beginning of the year. Against this background, individual disposable income will continue to expand substantially. At the same time, the weakening inflationary pressures in Germany are leading to a rise in purchasing power.

The continued improvement in employment, coupled with rising incomes and a moderate price development, is making an important contribution towards ensuring that the benefits of the economic upswing are reaching the public. For this reason, the Federal Government's economic policy continues to aim to strengthen the forces for growth in Germany and Europe. This includes sticking strictly to the path leading to sound public finances, and resolutely implementing structural reforms in the interest of more competition and open markets - in Germany, and in Europe as a whole.

Note:
A detailed report and commentary on the overall situation and trends in the German economy will be published in the March edition of the monthly report, "Schlaglichter der Wirtschaftspolitik" ("Economic policy highlights", in German only). This report is expected to be available on the website of the Federal Ministry of Economics and Technology in the 8th week of 2012.

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[1] The Federal Statistical Office will publish preliminary figures for the fourth quarter of 2011 on 15 February 2012.
[2] Where not otherwise specified, the data presented here involve rates of change over the respective previous period, adjusted for inflation, and adjusted for calendar and seasonal variations in accordance with the Census X-12-ARIMA procedure.

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