Growth curve with pen symbolizes the economic situation; source: iStock.com/blackred

© iStock.com/blackred

  • Economic activity picked up speed in the fourth quarter of 2016. Gross domestic product grew by 0.4% .
  • Output in the goods-producing industry fell significantly in December, resulting not least from the halt in production during the Christmas holidays. New orders and indicators of market sentiment were indicative of a good start to 2017.
  • The positive developments on the labour market are continuing in 2017.

The German economy developed positively in the final quarter of the year. Following a period of more moderate growth in the summer quarter (in price-, calendar- and seasonally-adjusted terms) of 0,1 %,[1] economic output rose quickly again in the fourth quarter by 0,4%.[2][3] The most important stimuli for growth came again from domestic demand. Investment activity in the construction sector boosted growth, as did consumer and government spending. In contrast, investment in equipment continued to remain subdued. Exports in goods and services grew noticeably in the final quarter of the year, albeit to a lesser degree than imports. On balance, foreign trade and investment therefore contributed negatively to gross domestic product (GDP) in statistical terms. Overall, 2016 saw solid growth in GDP of 1.9% in price-adjusted terms.

Cyclical indicators suggest a solid start to the financial year 2017. The business climate is positive and employment figures continue to rise, although in a more restrained manner. New orders in the processing industry and the construction industry proper received a considerable boost in the final quarter of the year 2016. All in all, this is likely to lead to further growth in overall economic output in the first quarter of the year, both in the manufacturing industry and the services sector. However, the uncertainties prevalent particularly in the external economic environment still remain.

The prospects for the global economy remain moderate. Following a slight decrease last year, global economic activity is expected to increase slightly this year. For example, global industrial output has lately increased somewhat. The figures shown by Markit’s worldwide Composite Purchasing Managers’ Index Global remain at a high level. In the United States of America, however, economic growth in the fourth quarter fell again slightly following strong growth in the preceding quarter. By contrast, growth in the economy of the eurozone picked up some speed and stabilised according to the latest forecast of the European Commission. The growth prospects for Japan remain at a more moderate level. In terms of the emerging economies, China is registering more constant growth rates again. As prices for raw materials are rising, Russia and Brazil are expected to overcome their current period of recession. According to its forecast of January this year, the International Monetary Fund expects the global economy to grow by 3.4% this year, following growth of 3.1% last year.

Preliminary figures of the balance-of-payments statistics by the Bundesbank show that Germany exported an all-time high of 1442.4 billion euros worth of goods and services (+1.9%) in 2016, while nominal imports amounted to 1199.2 billion euros (+1.0%). Germany’s current account balance rose by around 13 billion euros to 266 billion euros. While exports in goods and services fell by 5.8% in December (seasonally adjusted), the final quarter of 2016 still saw an increase in nominal exports of +1.9%. Whilst nominal imports of goods and services in December decreased slightly, down 1.0%, imports in the final quarter of the year increased by +4.0%, rising again more strongly than exports. Like the global economic outlook, national short-term economic indicators for foreign trade also point to a continued moderate upturn in exports.

Output in the goods-producing sector was significantly lower than that in the preceding month (-3.0%). An influencing factor in this regard may have been the fact that in 2016 there was a disproportionately high number of working days during the Christmas break when production is usually scaled down. Industrial output was therefore cut back more strongly (by 3.4%), as preliminary calculations show. However, the trend in industrial output is likely to keep pointing upwards as - notwithstanding the special end-of-the-year factors influencing output in the fourth quarter - the latter was only slightly less (-0.2%) than that in the third quarter of 2016. Furthermore, it is expected that the decrease in industrial output will have been offset at least partly at the beginning of the new year. New industrial orders, in particular, are indicative of a further improvement in industrial activity. Industrial orders rose by 4.2% in the fourth quarter. There was a strong increase in growth in domestic orders (up 6.1%) and in foreign orders (by +3.2% from countries outside the eurozone and by +2.5% from eurozone countries). The indicators of sentiment point to robust production growth in the coming months. Production in the construction industry proper fell in December by 1.7% compared to November. However, the fourth quarter saw a considerable increase in production, up 1.6% over the previous quarter. This strong upward trend in the construction sector is expected to continue.

In 2016, there was a marked increase of 2.0% in consumer spending (price-adjusted). Consumer spending is expected to have risen significantly also in the final quarter of the year. Despite the 0.9% decline in December, retail sales (excluding vehicles) rose noticeably, with average sales levels going up by +0.3%. By comparison, the trend in sales and the number of newly registered vehicles was rather moderate at the end of the year. Nonetheless, the mood amongst retailers and consumers remained very positive.

The job market was in good shape at the turn of the year. Gainful employment continued to increase (seasonally adjusted). It stood at around 43.6 million in December, representing an increase of 0.5% on the previous year (unadjusted figures). The trend in jobs requiring the payment of social-insurance contributions has slowed slightly, even though the figures in November were still 1.1% higher than those in the preceding year. The leading indicators continue to suggest a high demand for workers, but it will become more difficult to match the scarce supply with the current demand. Unemployment dropped by 26,000 in January in seasonally adjusted terms. According to the unadjusted figures, this meant that 2.78 million people were registered as unemployed. In terms of refugees who have access to the labour market, unemployment increased gradually even though many of them had acquired relevant job skills through their participation in employment measures. Overall, the outlook for the labour market remains good.

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Please 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 for Economic Affairs and Energy in the course of the 9th calendar week of 2017.

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[1] Press release on GDP figures issued by the Federal Statistical Office on 14 February 2017.
[2]The report is based on statistical data that were available as of 14 February 2017.
[3] Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted in line with the Census X-12-ARIMA procedure for calendar-day and seasonal variations.