The Economic Situation in the Federal Republic of Germany in November 2009 [1]

The German economy continued to recover in the third quarter of 2009 [2]. Gross domestic product increased in price, calendar and seasonally adjusted terms [3] by 0.7% over the previous quarter, after growing at a slightly upwardly revised rate of 0.4% in the second quarter. In year-on-year terms, economic performance in the third quarter was down 4.7% over a year ago (calendar-adjusted). During this period, the main stimuli came from plant and equipment investment, construction investment and the replenishing of inventories. Available indicators are signalling that the recovery will continue during the fourth quarter as well. Demand and industrial output are showing upward tendencies. Government stimulus measures are having an increasing impact on construction. Overall, service sectors are remaining relatively stable and expressing somewhat more optimism than during the first half of 2009. For the time being, however, the German economy has to rely on factors and stimuli that serve to stabilise the economy. The forces for growth are not yet self-supporting, and production capacities remain highly underutilised. Going forward, it is possible that companies will have to make further adaptations in staffing levels. And despite noticeable tendencies toward improvement, the crisis on financial markets has not yet been fully overcome. Positive effects are being generated by the ongoing stabilisation of the global economy as well as the fact that price trends remain calm. As a result, it is likely that the overall recovery of the German economy will continue, albeit from a low starting point due to the previous slump.

After declining for five consecutive quarters, the goods-producing industries have now turned the corner. Output recovered strongly in the third quarter, rising 3.5% over the previous quarter in price- and seasonally adjusted terms. Industrial output proved particularly strong, growing at a rate of 3.6%. Alongside the stabilising trends that are taking place at the global level, the economy is also being helped by the fact that inventories - which were reduced during the crisis - are being rebuilt with a view toward the anticipated rebound. According to the latest data, industrial output grew by 3.2% in September over the previous month. Stimuli in terms of turnover came mainly from foreign sources (up 6.2% in the third quarter), while domestic sales rose 1.0%. Producers of intermediate and capital goods in particular increased their output. Compared to a year ago, industrial production remained sharply lower, down 17.4% after adjustment for working day variations. However, demand continues to improve. New orders rebounded sharply overall in the third quarter, up 8.9% over the previous quarter, including a slight increase of 0.9% in September (in price- and seasonally adjusted terms). Business expectations in the manufacturing industry likewise continued to brighten in October. Therefore it is likely that the overall economy will continue to recover in the final quarter of 2009.

Construction output contracted in September by 1.8% in price- and seasonally adjusted terms. However, in the third quarter as a whole, construction output rose slightly by 0.3%. Civil engineering performed somewhat better than building construction primarily due to government stimulus measures. While orders in the construction sector fell slightly by 0.5% in August (in price- and seasonally adjusted terms), the overall trend was positive with an increase of 3.0% in the latest three-month comparison. The business climate in the construction sector remained highly pessimistic; however, given the somewhat brighter business expectations due to the extensive range of stimulus measures, construction activity can be expected to see a certain rebound in the coming months.

It appears that consumer spending did not increase in the third quarter. One reason for this is that stimulus measures had a somewhat weaker impact on private households. Thus retail sales (excluding motor vehicles) fell by 0.7% in the third quarter compared to the previous quarter (price- and seasonally adjusted), including a 0.2% drop in September. After rising sharply in the earlier part of the year, the motor vehicle trade has seen falling sales since the summer months and recorded a 4.1% drop in the third quarter. Due to ongoing difficulties in the labour market, it is rather unlikely that consumer spending will increase in the final quarter of 2009, an assumption that is also supported by the latest retail business climate data.

German exports continue to revive solidly as the global economy stabilises. Starting from their previous low level, merchandise exports grew sharply in the third quarter for the first time in a considerable period, up 5.4% in current prices (seasonally adjusted). This included an increase of 3.8% in September compared to the previous month. Compared to a year ago, however, exports remained significantly lower in the third quarter, down by 19.4% (unadjusted). Merchandise imports rose by 5.8% in September, and the 5.4% growth rate for the third quarter as a whole was equally dynamic. On balance, therefore, net foreign demand did not have an impact on the overall economy. And even though key export markets for German industry are recovering only gradually, the overall outlook for German exports has clearly brightened.

Germany's labour market continues to demonstrate remarkable stability and was most recently given a boost by a brisk autumn pick-up. The recovery of the economy means that the overall situation on the labour market may ease somewhat. However, there is still a risk that companies will have to make sharper adjustments to their staffing needs in the future. From July through September, seasonally adjusted employment figures showed little change. Total employment in Germany actually rose by 5,000 in September (seasonally adjusted). The latest unadjusted figures put total employment at 40.55 million, down 104,000 from a year ago. And registered unemployment actually fell slightly in recent months, with the most recent figures showing a decline of 26,000 in October (seasonally adjusted). However, these figures are also affected by overlapping special factors resulting from the reorientation of labour market policy instruments. The extensive use of short-time work schemes and flexible working hour arrangements continues to play a powerful role in mitigating the impact of the economic crisis. Registered unemployment stood at 3.229 million in October, up 232,000 from a year ago. The unemployment rate fell to 7.7%.

Price trends continue to remain extremely calm at all levels. Consumer prices in October remained at the same level as a year ago (0.0% change). The low rate of inflation continues to be attributable mainly to the sharp decline in energy and food prices compared to a year earlier. The core inflation rate (excluding energy and seasonal foods) also stayed at its low level of +1.0%. Compared to the previous month, consumer prices rose slightly in October by 0.1%, in part due to an increase in heating oil prices.
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[1] This report relies on statistical data that were available as of 16 November 2009.
[2] Preliminary data on third quarter GDP issued by the Federal Statistical Office on 13 November 2009. Detailed results will be announced on 24 November.
[3] Where not otherwise specified, seasonally adjusted data have been calculated in accordance with the Census X-12-ARIMA procedure.