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

© iStock.com/blackred

  • Economic growth accelerated slightly at the beginning of 2017.
  • In particular, output in the goods-producing industry expanded strongly. Special developments supported the manufacturing sector and the building sector.
  • Significant growth in employment boosted consumer spending.
  • There was a significant acceleration in the development of prices.

German economic expansion gained some speed in the first quarter of 2017. [1] Special factors are boosting the solid economic upswing, which is also being significantly driven by domestic economic forces. After the weaker winter months, the construction-friendly economic environment is now also triggering a significantly higher production output which is reflected in the statistics. The economy in the industrial sector has also picked up speed, benefiting from the pent-up demand at the beginning of the year. The strong employment upswing is continuing dynamically in nearly all economic sectors, particularly in most service sectors. Despite the lowered business expectations of service providers, a significant increase in added value is expected in these areas. According to the current state of economic indicators, we assume that the German economy grew very dynamically in the first quarter of 2017.

Compared to the level of industrial production in the last quarter of 2016, the global economy has picked up some speed. Markit's Global Purchasing Managers Index has been improving since the second half of 2016 and according to the IFO institute the global economic climate picked up in the first quarter of 2017. In the United States, economic output is expected to grow more strongly in 2017 than in the previous year. Uncertainties, however, remain, high. The economic outlook is slightly brighter in the eurozone, too. Despite increased risks, economic growth should therefore reach a similar level to the year before. In Japan, economic development has stabilised and economic output is likely to rise moderately this year. Growth in the emerging economies continues to vary widely. China and India once again are registering more constant growth rates. As prices for raw materials are rising, Russia has overcome its period of recession. Brazil is expected to follow suit. Overall, global economic growth in 2017 is expected to be somewhat higher than last year. According to its March forecast, the OECD expects the global economy to grow by 3.3% this year, following growth of 3.0% in 2016.

Preliminary figures of the balance-of-payments statistics by the Bundesbank show that, in this slightly more active economic environment, Germany exported more (+0.4%) and imported less (-2.2%) in terms of goods and services in February 2017 than the month before. In nominal adjusted terms, exports - and even more so imports - are trending upwards. A major reason for this trend is the quicker rise in export and import prices, price dynamics being stronger for imports than for exports. The increased prices for energy products also mean that energy consumption is rising and that the current accounts balance is falling. The global economic environment and the national indicators on foreign trade point to a further moderate expansion of German exports.

In February, the manufacturing sector repeated its strong production increase (+2.2%) from January. [2] Industrial production continued to rise (+0.9%), though not as strongly as in January. Consumer goods and capital goods producers increased their output by slightly above the average. The development in sales was almost identical (+1.1%). Domestic business (+2.0%) grew more strongly than foreign business (+0.3%). In terms of new orders, half of the setback from January was compensated in February (+3.4%). It should be taken into account that the fourth quarter was marked by a very strong growth in the order books and was somewhat overstated by major large-scale orders. The level of orders, therefore, remains a cause for optimism. Indicators of market sentiment and developments on the manufacturing sector employment market are also showing that industrial activity is somewhat more dynamic. Production in the construction sector expanded significantly at the beginning of the year. In purely arithmetical terms, it grew by +13.6% in February, which is much stronger than in January when figures had been revised upwards. It is possible, however, that a statistical special effect in the construction statistics and the annual update of the report category have had a significant influence on this growth development. Ultimately, the basic conditions, the increasing number of building permits and orders, and the good business climate, favour a continued dynamism in the construction industry.

Private consumer spending remains very strong. In February, retail turnover (excluding vehicles) rose by 1.8% with a clear upwards trend. Vehicle sales also expanded in January. Their sales dynamics have somewhat declined in recent months. However, the growing number of new registrations points to a positive development. Overall, sentiment among consumers is very good, even though income expectations have dropped due to the slightly higher price increases relating to the oil price. The IFO business climate amongst retailers remains above average.

The positive developments on the labour market are continuing in the first quarter of 2017. Gainful activity and employment requiring compulsory social insurance payments again expanded strongly. In February, the number of people in work rose further by 50,000 (seasonally adjusted). According to the unadjusted figures, there were 43.6 million gainfully active people in Germany, or 1.4% more than a year ago. The increase in jobs subject to the payment of social security contributions was even more impressive. In January, the figure increased by 2.4% over the preceding year. The leading indicators, even though slightly lower, continue to suggest a high demand for labour. Unemployment dropped by 30,000 in March in seasonally adjusted terms. According to the unadjusted figures, unemployment fell to 2.66 million people or 183,000 fewer unemployed people than in March last year.

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[1] The report is based on statistical data that were available as of 10 April 2017.
[2] 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.

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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 May 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 17th week of 2017.