The Economic Situation in the Federal Republic of Germany in July 2012 [1]
Following high growth at the start of the year, economic dynamism in Germany is showing signs of weakening, particularly due to uncertainties brought about by the euro crisis. On the whole, the German economy remains stable.
Production and ordering activity in industry and exports of goods have recovered following the losses suffered in the previous month, with current figures above the level recorded in the first quarter. The decline in the indicators of business sentiment, which was noticeable in some cases, reflects the increased risks in the international environment.
The labour market continues to be an anchor of stability. The upswing in employment levels is continuing. Rising incomes and stable prices are strengthening consumer spending, which is continuing to boost the domestic economy.
Despite rising uncertainties in the wake of the euro crisis, the German economy continues to remain stable. Surprisingly strong growth in the first quarter has now given way to a slower pace of economic development. Whilst the indicators of real economic activity in May largely improved, the further-reaching survey results among companies and analysts were restrained. Following a period of optimism in spring, a greater awareness of the risks to the economic recovery have evidently re-emerged towards the end of the second quarter. The latest economic data for the USA in particular were also disappointing, showing persistent high unemployment, sluggish industrial production and dwindling consumer confidence. Against this background, the IMF revised its growth forecast for the United States slightly downwards. In contrast, the decisions made by the eurozone countries at the summit at the end of June received a largely positive response, even if they were unable to dispel the scepticism surrounding economic development in the eurozone. In the coming months, the German economy will therefore continue to face considerable external risks.
Against this background, it even more important to steer a liberal course based on the principle of market economy. In the current crisis, Europe will only able to regain confidence and strength if European economic policy is geared towards regulatory principles. This means that those who take risks must also assume liability. The rescue measures at European level must not lead to the automatic communitarisation of risks and thus to the creation of false incentives. This applies to the future European banking regulator, for example - where liability and control go hand in hand. No quick-fix decisions must be made towards the establishment of a banking union with liability transfers. It is equally important to preserve the independence of the ECB. There must be no conflicts of interest between the banking regulator and monetary policy.
German foreign trade has more than compensated for the losses of the previous month. In May, both exports and imports of goods showed strong increases of 3.9% [2] and 6.3% respectively (seasonally adjusted for price variations). This illustrates that the trend in the export market is picking up again, whilst imports continue to display a somewhat mixed picture.
In May, German industrial output largely recovered, achieving a plus of 1.8% (seasonally adjusted for price variations). This sector currently stands above the levels reported in the first quarter. However, the current growth figures are slightly elevated since the process of seasonal adjustment does not take account of the long weekends taken in May and April due to the national holidays. There is therefore no clear upward trend to be seen in industrial activities as yet. In May, the construction industry proper reported a clear increase in output of 3.1% - the trend continuing to point clearly upward. On the whole, the chances of a stable second quarter have clearly improved for the manufacturing industry. The fact that new industrial orders in May increased by 0.6% also plays a part in this. The increase is down to strong foreign demand driven by large orders in the category of "other transport equipment". In terms of the overall economy, the current trends - which clearly point upwards - are therefore similarly a little overstated. The further-reaching outlook also remains affected by the uncertain development in the eurozone, which is reflected in the current results of surveys conducted amongst procurement managers and companies.
The labour market continues to play an important role in stabilising the economy. Up to now, the increase in employment levels has remained more or less constant. In May, there were a total of 41.58 million gainfully active persons in Germany - these figures show a further marked increase in the country's employment rates. This development continues to be bolstered by clear growth in jobs subject to the payment of social security contributions. However, the pace of growth in employment levels is continuing to slow. This is shown even more clearly in the development of employment rates: While the number of registered unemployed continued to fall, levelling at 2.809 million in June, this decline was considerably lower than what is normal for this time of year. Companies have also shown greater reluctance to take on new employees. However, demand for labour remains at a high level despite the recent, non-uniform development in leading indicators.
The generally positive underlying trends on the labour market continue to ensure positive prospects for incomes and consumption. Against a background of falling energy prices, the slowing expansion of consumer prices - which recently settled noticeably under the 2% mark, at 1.7% (annualised rate) - is continuing to contribute to the increase in purchasing power. The prospects for consumer spending therefore remain bright. This can be seen not least of all in the sustained strength of consumer confidence.
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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 August edition of the monthly report, Schlaglichter der Wirtschaftspolitik ("Economic policy highlights", in German only). The August report is expected to be available on the website of the Federal Ministry of Economics and Technology in the middle of the 30th week of 2012.
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[1] This report is based on statistical data that were available as of 9 July 2012.
[2] Where not otherwise specified, all rates of change relate to the respective previous period, adjusted for seasonal variations and working-day variations (in accordance with the Census X-12-ARIMA procedure).
