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

© iStock.com/blackred

  • The German economy grew strongly in the first quarter, by 0.6%.
  • Output in the goods-producing industries contributed to this. The construction sector in particular saw an increased rise in output, and industrial production also picked up speed. The business climate is excellent.
  • The number of people in work is continuing its dynamic rise. Additional jobs are currently being created in almost all sectors of the economy.
  • The development in prices has accelerated appreciably. Nevertheless, private-sector and public-sector spending on consumption is continuing to grow significantly in real terms.

Germany’s economy enjoyed a good start to the year. In fact, the economy actually picked up speed in the first quarter, helped by special effects. [1] After adjustment for price, calendar and seasonal variations, GDP increased by 0.6%, having grown by 0.4% in the final quarter of 2016. [2][3] This is also reflected in the good development in employment. Alongside the construction sector and industry, almost all services sectors probably also contributed to this. Demand-side stimuli in the first quarter derived from both domestic and foreign sources. In addition to private and public spending on consumption, and to investment in construction, investment in equipment also picked up sharply again for the first time in three quarters. The upswing in the German economy is likely to continue at a solid pace in the coming months. This is also suggested by the relevant indicators, all of which are at a high level.

In overall terms, the global economy is experiencing a slight recovery. However, growth was rather disappointing in the first quarter. For example, the expansion of economic output in the United States in the first quarter of 2017 failed to meet expectations, and the same was true of the United Kingdom. Economic development in the eurozone seems to be taking place at roughly the same rate as last year. In Japan, the economy has stabilised somewhat, and is likely to continue to point moderately upwards. The economic situation in the emerging economies continues to vary widely. China and India once again are registering more constant and high 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 higher than last year. According to its April forecast, the International Monetary Fund expects the global economy to grow by 3.5% this year, following growth of 3.1% last year.

In what remains a mixed global environment, somewhat less goods and services were exported in March 2017 (-0.7%) and much more imported (+2.9%) than in February, according to the balance-of-payments statistics of the Bundesbank. In the first quarter as a whole, both exports (+2.9%) and imports (+2.2%) expanded strongly in current prices. However, a major reason for this trend is the quicker rise in export and import prices. As a result, the price-adjusted growth of imports in particular is much more modest. The global economic environment and the national indicators on foreign trade point to a further moderate expansion of German exports.

Output in the goods-producing sector in March (-0.4%) was slightly lower than in February, after two months of significant rises. This was due to industrial output (-0.5%), and capital goods in particular (-1.2%). In contrast, construction output (+1.5%) rose again in March. This means that in the first quarter of 2017, output in the goods-producing sector rose strongly, by 1.4% over the preceding quarter. Industrial production grew by 1.1%, and construction output by 4.7%. The level of industrial dynamism is likely to have been slightly overstated here, since the position of the Christmas holidays meant that some output was delayed until January. In the construction industry proper, a role was also played by the regular updating of the reference base. New manufacturing orders expanded moderately in March, by +1.0%, following a sharp rise in February. In the first quarter, the overall level of new orders was down slightly (-1.0%). But the final quarter of 2016, with its rise in orders (+4.3%) and substantial large-scale orders, did set a high benchmark. For this reason, the level of new orders, the excellent business climate and developments on the manufacturing sector employment market are all indicative of an ongoing upward trend in industrial activity. In the construction sector, the dynamic development is also set to continue in view of the good policy environment, the order book situation and the good business climate.

Despite the normalisation in consumer prices, consumer spending remains very robust. In March, retail turnover (excluding vehicles) stayed roughly up at the high level seen in the preceding month. Overall, the first quarter was thus less dynamic than the second half of 2016. In contrast, turnover in the vehicle sector picked up speed. It rose by 3.1% to a new record level in February. Both consumer sentiment and the business climate amongst the retailers have recently improved.

The positive overall development on the labour market continued. Gainful activity and employment requiring compulsory social insurance payments again expanded strongly. In March, the number of people in work rose by another 42,000 (seasonally adjusted). According to the unadjusted figures, there were 43.8 million gainfully active people in Germany, or 1.5% more than a year ago. Employment subject to the payment of social security contributions rose by even more. In February, the figure increased by 2.3% over the preceding year. The improved leading indicators continue to suggest a high demand for labour. Unemployment dropped by 15,000 in April in seasonally adjusted terms. According to the unadjusted figures, unemployment fell to 2.57 million people. A year ago, 175,000 more people were registered unemployed. Going by the leading indicators, the seasonally adjusted unemployment is likely to continue to fall slightly in the next three months.

------------------------------------------------

[1] Cf. section on the development of output in the goods-producing sector.
[2] The report is based on statistical data that were available as of 12 May 2017. 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.
[3] Preliminary data on GDP development in the first quarter issued by the Federal Statistical Office on 12 May 2017.

------------------------------------------------

Please note:
A detailed report and commentary on the overall situation and trends in the German economy will be published in the June 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 22nd week of 2017.