The Economic Situation in the Federal Republic of Germany in May 2012 [1]
The economic outlook for Germany improved in the first quarter of 2012. The noticeable growth in industrial output and the continued recovery of ordering activity in March confirm the signals of the sentiment indicators which were already positive.
The weather-related slump in construction output in February was more than offset by the strong increase in the sector in March.
The positive trend on the labour market is continuing. Growth in employment and incomes remains the main pillar of the domestic economy.
Following a slowdown in growth during the winter months of 2011/2012, economic dynamism picked up again in the first quarter of this year. The prospects for future developments have brightened. Leading indicators are signalling a growing revival of economic activity, particularly in the industrial sector, which is a key component of economic growth in Germany. The global economic environment is also increasingly showing signs of economic recovery. Leading indicators for significant industrialised and emerging countries are pointing slightly upwards. The US and Japanese economies are picking up some speed while China and India are experiencing robust growth. Consequently, the International Monetary Fund corrected its latest growth forecast for the global economy upwards in April. At the same time, the pressure on prices for crude oil has lessened somewhat in recent weeks. The current situation in the eurozone, however, remains tense. Against the background of the continued sovereign debt and financial crisis and the declining economic development in a number of Euro countries, there continues to be a high level of uncertainty and risk.
Since global trade is recovering, German foreign trade is increasingly receiving a positive stimulus, particularly from emerging countries. Both, exports and imports continued to rise in March by a total of 0.9 % and 1.2 % [2] respectively. The strong expansion of German imports helps reduce current external trade imbalances with some trading partners and provides a positive stimulus for growth in these countries.
In March, German industry reported a clear increase in production output by 1.5 %. At the same time, the figures for February were clearly corrected upwards. Thus, industrial output in the first quarter of 2012 was above the previous quarter's level. The prospects for the industrial sector have improved further. New industrial orders rose clearly in March by 2.2 %. Since business sentiment indicators show an overall positive tendency, with some of them showing strong improvement in March, the opportunities for a further pick-up in industrial orders have risen noticeably. Companies continue to see a sharp increase in order activity coming from countries outside the eurozone that mainly order capital goods. But domestic orders also rose slightly in March. In contrast, new industrial orders from the euro area stagnated. Output in the construction industry proper rose sharply by 30.7 % in March, which more than offset the drastic weather-related decline in February. However, construction output in the first quarter did not reach the level of the previous quarter, but given the intense order activity in the building sector, the outlook remains favourable.
The labour market has overcome the phase of economic weakness in the past winter semester and continues to be in a robust state. There was strong growth in employment in March, with the number of gainfully employed people rising by 29,000 (in seasonally adjusted terms). Here, the marked increase in the number of jobs requiring social insurance contributions remains the key factor. In total, 41.26 million people were gainfully employed in March. The number of registered unemployed persons stood at 2.963 million in April, once again below the three-million mark. The demand for workers continues at a high level even though the relevant leading indicators are likely to have exceeded their peaks. On the whole, the labour market remains a significant pillar of the domestic economy.
Not least due to the good development in the labour market, the disposable incomes of private households will continue to develop in a positive direction and contribute to strengthening the purchasing power of consumers. However, domestic consumption is weighed down by the upward pressure on prices, which is still noticeable even though the inflation rate went down to 2.0% in April compared to the previous year. Recently, the price increases have also been reflected in slightly subdued consumer sentiment. In addition, these increases are placing a burden on retail sales, which are continuing a downward trend for the moment in spite of a slight recovery in March. Nonetheless, the prospects for consumer spending, which is a major factor of the domestic economy, remain favourable due to the sustained positive trends on the labour market.
This development shows that the good prospects for incomes, employment and consumption in Germany have not happened by themselves. First and foremost, they are the result of structural labour market reforms and the responsible behavour by the social partners. It is now vital to safeguard this successful development for the future. In this context, the International Monetary Fund (IMF) has called for maintaining the current pace of reform during its latest Germany consultations. The advice of the IMF experts has further been to continue to improve the foundations of growth and, in particular, to better leverage the potential of the labour market. This applies to both the participation of women and older people in the labour market and the immigration of skilled staff.
One thing is clear: New bureaucratic hurdles to recruitment must not jeopardise the internationally acclaimed success story of the German labour market.
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Note:
A detailed report and commentary on the overall situation and trends in the German economy will be published in the June 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 middle of the 21st week of 2012.
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[1] This report is based on statistical data that were available as of 9 May 1212.
[2] Where not otherwise specified, all rates of change relate to the respective preceding period and are adjusted for seasonal fluctuations and working-day variations in accordance with the Census X-12-ARIMA procedure.