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

© iStock.com/blackred

  • The accelerated upswing in the German economy is continuing into the second quarter.
  • The goods-producing sector has expanded its output for the fifth consecutive month. The business climate in industry is excellent.
  • Consumer prices are rising more strongly again. Nevertheless, consumer spending is continuing to grow significantly in real terms.
  • The number of people in work is continuing to rise, albeit at a slower pace. Progress towards reducing unemployment has also slowed.

The slightly accelerated recovery of the German economy in the first quarter that led to a 0.6% growth in GDP continued into the second quarter of 2017. [1] This is suggested by current indicators of economic performance. Business sentiment is excellent. Relevant business surveys such as the ifo Business Survey for trade and industry or the Markit's Global Purchasing Managers Index reached new local all-time highs in June. Output in the goods-producing sector rose in May for the fifth consecutive month and, provided that ordering activity remains in good shape, is set to rise again substantially in the second quarter. Employment continued to grow strongly in May, although the upward trend weakened slightly compared to the winter semester. After the surge in investment in the first quarter, the upturn in the second quarter appears to be somewhat more driven by private consumer spending again. On balance, it appears that foreign trade has provided virtually no stimulus for growth. German exports are noticeably benefiting from the upturn in global trade. However, they are expected to rise somewhat less (in price-adjusted terms) than imports, which are also following an upward trend.

The high level of global economic growth has been consolidated. World trade, in particular, has picked up speed since last autumn. Global industrial output is continuing on an upward trend. It is growing dynamically, particularly in the Asian emerging economies and the industrialised countries. Economic expectations for the eurozone have continued to brighten. GDP in the United States, despite its weak first quarter of 2017, is expected to grow more strongly in 2017 than in the previous year. Growth in the Japanese economy remains moderate. Among the emerging economies, China has registered more constant growth rates again. As prices for raw materials are rising, Russia has overcome its period of recession. Brazil is expected to follow this year. Overall, global economic growth in 2017 is therefore expected to be substantially 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 are continuing to trend upwards. According to preliminary balance-of-payments statistics from the Bundesbank, Germany’s exports of goods and services in May 2017 rose by 2.4% compared to the previous month. The more significant three-month comparison also shows that exports are moving upwards (+2.7%). At +2.0% in May, imports rose somewhat less strongly than exports. In the three-month comparison, however, they nominally expanded more strongly (+3.4%) than exports. This means that the trend of a current-account surplus in slight decline that we have been observing since mid-2016 is continuing. The national indicators on foreign trade and the global economic recovery point to a further moderate expansion in German exports.

German industry is in good shape. The high number in incoming orders in the final quarter of 2016 has led to some lively production activity since the beginning of the year. In May, industrial production picked up noticeably again (+1.3%), thus expanding for the fifth month in succession. The economic upswing can be felt in almost all sectors of the economy. The positive sales figures at home and abroad confirm this impression, as well as the Ifo business climate, which is almost at historic all-time highs. Even though production output in June was weaker, an overall strong second quarter can be expected. However, the trend in new orders has been flat in recent months, making it likely that industrial activity will be somewhat more moderate in the second half of the year. Output in the construction sector is currently stagnating at a high level, but is expected to make a substantial contribution to growth in the second quarter. Given the favourable business environment in the construction sector, the mood in this industry is extremely good. It is only the business expectations that have dimmed somewhat in the first half-year.

Despite the normalisation in consumer prices, consumer spending remains a reliable pillar of the economy. As of June, consumer prices were 1.6% up in year-on-year terms. Retails sales rose by 0.5% in May and continued to point clearly upwards. Consumers’ strong buying mood and the upbeat sentiment in retail trade confirm this positive impression. New vehicle registrations are also showing a rising trend. However, this trend seems to apply more to commercial rather than private vehicles. Overall, it can be assumed that consumer spending will continue to expand noticeably in the second quarter, not least due to the robust development of income and employment.

The labour market continues to develop positively. Gainful activity and employment requiring compulsory social insurance payments again expanded, though growth in recent months was somewhat weaker than in the winter semester. In May, the number of gainfully employed people in Germany rose by 36,000 (seasonally adjusted). According to the unadjusted figures, there were 44.2 million gainfully active people in Germany, or 1.5% more than a year ago. The number of jobs requiring social insurance contributions rose in April by 2.3%. Additional jobs are currently being created in almost all sectors of the economy. However, unemployment rose slightly in June for the first time in two years (in seasonally adjusted terms), climbing by 7,000. According to the unadjusted figures, this meant that just under 2.5 million people were registered as unemployed, 142,000 fewer than a year before. Going by the leading indicators, seasonally adjusted unemployment is expected to only fall slightly in the next three months.

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

Please note:
A detailed report and commentary on the overall situation and trends in the German economy will be published in the August 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 31st week of 2017.

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

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