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

© iStock.com/blackred

  • The upswing in the German economy is continuing in the second quarter.
  • Industry has expanded its production for the fourth consecutive month. Production in the construction sector remains at the same level after having experienced considerable growth in the preceding months. The business climate has reached a record level.
  • The number of people in work is continuing its dynamic rise. Given the continuously falling unemployment rates, the development of real wages is relatively weak and the number of atypically employed persons remains high.
  • Nevertheless, private-sector and public-sector spending on consumption is continuing to grow significantly in real terms.

The upswing in the German economy continues in the second quarter of 2017.[1] Output in the goods-producing sector grew again in April and exceeded the good results of the first quarter. Employment is continuing to rise quickly. Additional jobs are currently being created in almost all sectors of the economy. On the demand side, the economy is primarily driven by investments, although private and public spending on consumption is also boosting economic growth in Germany. The slight global economic revival supports export developments and is providing an additional impetus to growth at a time when imports are growing slowly.

Overall, the prospects for the global economy have slightly improved. Global industrial output continues to point upwards, mainly due to developments in the emerging economies. Economic expectations for the euro zone have brightened somewhat recently. In the US, gross domestic product is expected to rise more strongly in 2017 than in 2016, in spite of a weak first quarter. Economic growth in Japan remains moderate. The latest figures show that China is once again recording steady growth rates, and as prices for raw materials are rising, Russia and Brazil are expected to overcome their current period of recession and reach positive economic growth, too. Overall, global economic growth in 2017 is expected to be somewhat higher than last year. According to its June forecast, the OECD expects the global economy to grow by 3.5% this year. This forecast has been adjusted upwards since the beginning of the year.

German exports continue to point upwards in this slightly more brisk global environment. Although preliminary figures of the balance-of-payments statistics from the Bundesbank show that Germany’s exports of goods and services in April 2017 stayed at the same level as in March (+0.0%), the more significant three-month comparison shows that their nominal growth was 2.4%. Imports rose by 0.4% in April. In the three-month comparison, they nominally expanded slightly less (0.9%) than exports. This means that the trend of a falling current-account surplus, that we have been observing since mid-2016 is continuing. The global economic environment and the national indicators on foreign trade point to a further moderate expansion of German exports.

The goods-producing sector expanded its production in April (+0.8%). For the fourth consecutive month, industry (+0.4%) produced more than the month before. In April, this was due to a growth in the production of intermediate goods (+1.0%) and capital goods (+0.3%). The construction sector, however (-0.1%) is trending flat after a very strong increase in the first quarter of 2017. This means that, in a three-month comparison, output in the goods-producing sector rose strongly, by 2.3% over the preceding three months period. Industrial production grew by 1.8% and construction output by 8.8%. Due to the small amount of large orders, orders received by the manufacturing sector were rather weak in April (-2.1%). In a three-month comparison, however, industrial orders show a slightly upward trend (+0.8%). In total, the level of new orders, the improved business sentiment and developments on the manufacturing sector employment market are all indicative of an on-going 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. Turnover in the retail sector decreased slightly in April but remained higher than the average of the first quarter and 2% stronger than the year before. Turnover in the vehicle sector continues to develop dynamically. After a very strong increase by 3.0% in February, sales in the vehicle sector decreased only slightly by 0.4% in March. Private consumption is expected to have continued a robust expansion: for example, consumer sentiment improved again in May.

The positive overall development on the labour market continued. Gainful activity and employment requiring compulsory social insurance payments again expanded strongly. In April, the number of gainfully employed people in Germany rose by 31,000 (seasonally adjusted). According to the unadjusted figures, there were 44.0 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 March, the figure increased by 2.4% over the preceding year. Additional jobs are currently being created in almost all sectors of the economy. The leading indicators continue to suggest a high demand for labour. Unemployment dropped by 9,000 in May in seasonally adjusted terms. According to the unadjusted figures, unemployment fell to just under 2.5 million people. A year ago, 166,000 more people were registered unemployed in May. Going by the leading indicators, the seasonally adjusted unemployment is likely to continue to fall slightly in the next three months.

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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 July 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 26th week of 2017.

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[1] The report is based on statistical data that were available as of 12 June 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.