The economic situation in Germany in October 2012 [1]
The German economy is increasingly influenced by the weak European and global economic environment. Whilst it has proved to be relatively resilient so far, the downside risks remain high.
The trend in industrial output remains stable, with a slight decline in August. Construction output is weakening to a certain degree. Industrial order activity is restrained at present. The indicators of sentiment provided mixed signals in September.
Exports expanded sharply in August. Trade with countries outside the eurozone in particular was brisk.
The weakness in the economy is increasingly impacting the labour market. For the time being, there are unlikely to be further significant increases in the current high level of employment.
Germany's economy is developing at a noticeably slower pace. However, compared with the recessionary tendencies in the eurozone, it remains comparatively resilient. In the second quarter, the expansion of gross domestic product slowed to a rate of +0.3%, adjusted for price, calendar-day and seasonal factors. The current cyclical indicators suggest that the development is likely to slow down in the second half of the year. On the one hand, individual survey-based indicators did improve in September, after deteriorating - in some cases seriously - in the preceding months. However, the mood amongst the companies has worsened further. Overall, the economy faces considerable downside risks.
Despite some positive news, the economic recovery is more sluggish than expected in key industrial nations like the U.S. and Japan. In its interim economic outlook of September, the OECD expects the weak growth in the G7 countries to continue for the rest of the year. Economic activity is also cooling in major emerging economies like China. The eurozone is experiencing a slight recession, and this is increasingly impacting not only the peripheral countries, but also the core member states. This means that the environment for German foreign trade remains difficult. Despite this, German exports are continuing to do well thanks to their high level of competitiveness, and are pointing clearly upwards. In August, they increased by 2.4% compared to the previous month. Demand for German products remained brisk in countries outside the eurozone in particular. As in the preceding month, nominal imports of goods rose by 0.3% in August.
Growth in the goods-producing industry remains moderate. The slight drop in output in August of 0.5% was probably exaggerated by the effects of holidays. Despite this drop, output remains higher than in the second quarter. This is primarily due to industry, with its importance for the economy, whilst the development in construction output is very weak at present. Latest figures show industry continuing to profit from rising sales in non-eurozone countries. However, the prospects for industrial output are dampened by the current decline in demand for industrial products. Here, domestic companies are reining in their order activity more than foreign clients. This is particularly true of demand for capital goods. With regard to indicators of mood, the ZEW Indicator of Economic Sentiment and Markit's Purchasing Manager Index provided more positive signals again in September; in contrast, the ifo business climate for the manufacturing sector deteriorated further. Overall, the indicators suggest that, despite the generally difficult environment, the development of the core areas of the economy will at least be stable in the second half of the year.
The weaker economy is increasingly being reflected in declining dynamism on the labour market. For example, there has been a slight rise in the number of unemployed for half a year now. The seasonally adjusted increase in September of 9,000 people is in line with the average rise over the last six months. For the first time in more than two-and-a-half years, the growth in employment virtually came to a halt. Seasonally adjusted employment rose by only 4,000 people in August. In contrast, the rise in employment subject to social security contributions was surprisingly sharp in July (+56,000). However, it remains to be seen whether the final figures will confirm this.
The lower increase in the number of people in work also means a smaller stimulus for the development in consumer spending. However, the rising wages and salaries are continuing to boost growth against the background of low inflation in Germany. The high level of consumer confidence also suggests that consumer spending will continue to boost the German economy in the second half of the year.
Against the background of increasing risks to economic growth, the growing calls for purportedly well-intentioned "good deeds" by the state must be viewed with concern. These involve not only a greater financial burden on government finances, but also economic policies which are wrong in principle. In its role model function as an anchor of stability in Europe, Germany should not put redistribution ahead of generation of wealth. Rather, now in particular, the economic strategy should aim to further strengthen the competitiveness and resilience of the German economy. That is the best way to achieve a further increase in the welfare of all citizens in future.
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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 November edition of the monthly report, Schlaglichter der Wirtschaftspolitik ("Economic policy highlights", in German only). This November report is expected to be available on the website of the Federal Ministry of Economics and Technology in the 43rd week of 2012.
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The report is based on statistical data that were available as of 8 October 2012.
