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

© iStock.com/blackred

  • German economy has maintained its strong growth rate at almost the same level in the second quarter. The stimuli for growth came from domestic demand.
  • Growth in the goods-producing sector is pointing clearly upwards, even though production was slightly limited in June. The business climate in industry is excellent.
  • Consumer prices have normalised against the background of stable energy prices. Consumers are still very much in a mood to spend money.
  • The number of people in work continues to rise. The trend in unemployment and underemployment is pointing downward. However, structural challenges on the labour market still need to be tackled.

The German economy’s sharp upswing continued in the second quarter 2017 with virtually the same strong level of momentum. [1] Growth was driven by strong domestic demand. Public-sector consumption and private-sector consumption increased. Investment both in equipment and in construction expanded. Business sentiment is excellent. In July, the ifo Business Climate Index reached an all-time high since Germany’s reunification. The IHS Markit Purchasing Manager Index inspires optimism. After five consecutive months of growth, output in the goods-producing industry fell slightly in June but the trend continues to point upwards. Increasing orders in the industry sector indicate an increase in production also in the third quarter of 2017. Employment continued to grow strongly in June, although growth did not reach the momentum of the months around the turn of the year. The positive development in employment and income is supporting retail trade and private consumption. German exports are benefiting from the slight upturn in global trade. When looking at the foreign trade balance, however, the economic development slowed down somewhat in the second quarter due to the strong growth in imports.

The global economy showed a robust development in the first half of 2017. Global industrial output has been continuing on an upward trend since October 2016. There is dynamic growth in the Asian emerging economies. Advanced economies have also picked up steam. Global market sentiment indicators are increasingly optimistic. Economic expectations for the Eurozone have continued to brighten. In the United States, economic growth has stabilised after a weak first quarter. In Japan, economic growth has been surprisingly high in the second quarter. 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 higher than last year. According to its July forecast, the International Monetary Fund, as other organisations before, expects the global economy to grow by 3.5% this 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 June 2017 rose by 1.7% compared to the previous month. Meaningful quarter-to-quarter results however show that they rose by 0.9%. Imports fell in June by 4.7% more significantly than exports. In the quarterly comparison, there was an increase of +1.8%, which means that they increased more 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. In June, production fell by 1.4% compared with the preceding month; before, however, it had been on the increase for five consecutive months. In quarterly terms (+1.3%) momentum is just as high as in the first quarter. The economic upswing can be felt in almost all sectors of the economy. The positive sales figures confirm this development. Early indicators suggest further growth. The ifo business climate for instance has reached a historic high. Order intake also no longer appears to develop sideways, so that industrial activity is likely to remain noticeably upwards in the coming months. 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 and business expectations are more confident.

Given the positive development of employment and the positive development of income in the overall perspective, private consumption also represents a major pillar of the economy in the second quarter of 2017. This caused retail turnover (excluding vehicles) to rise strongly in June, by 1.1%. Across the second quarter, we see a clear increase of 1.4%. Revenues in the car trade rose by 3.1% in May and are also developing positively. The normalisation of consumer prices, which in July were 1.7% above the previous year's level, does not seem to dampen consumer spending. The consumer climate climbed to a new record level in August and also the sentiment among the retailers is above average.

The labour market developed favourably and the economic outlook remains positive. The monthly increase in employment has been somewhat weaker since February than in the preceding quarter. In June, the number of gainfully employed people in Germany rose by 46,000 (seasonally adjusted). According to the unadjusted figures, there were 44.4 million gainfully active people in Germany, or 1.5% more than a year ago. Employment in jobs subject to social insurance increased again stronger in May (+75,000 people), after weaker growth in March and April. It increased more strongly than gainful activity in general. Additional jobs are currently being created in almost all sectors of the economy. With the start of the summer holidays, annual average unemployment and underemployment slightly increased in July. According to the unadjusted figures, this meant that just under 2.52 million people were registered as unemployed, 143,000 fewer than a year before. Seasonally adjusted, unemployment and underemployment figures were slightly lower in June. The positive development on the labour market, however, must not hide the existing challenges. Regional disparities in unemployment figures remain very high. Moreover, the reduction of long-term unemployment, which still affected nearly 900,000 people in July, and the integration of refugees remain major challenges.

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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 September 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 35th week of 2017.

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[1] The report is based on data that were available as of 15 August 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.