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

© iStock.com/blackred

  • In statistical terms, the rate of growth of the German economy accelerated during the first half of 2017. The main stimuli for growth came from domestic demand.
  • Although it slowed somewhat in June and July, growth in the goods-producing sector continues to point upwards. The business climate in industry remains upbeat.
  • Thanks to stable energy prices, prices for consumer goods have normalised and consumers are still very much in a mood to spend money.
  • The positive underlying trends on the labour market are continuing. The high demand on the labour market has led to an increase in employment. Unemployment and underemployment are tending downwards. Nevertheless, the labour market still has structural challenges to be resolved.

The German economy is experiencing a solid expansion. Economic growth picked up considerable speed in the first half of 2017. Overall economic output in the first half of the year expanded by 1.2% over the preceding six months after growing by 0.8% in the second half of 2016 in price-, calendar- and seasonally-adjusted terms. [1] The main drivers of the economy in the first half of 2017 have been domestic factors. While the stimuli from private and public spending continued, investments in buildings increased (+4.4%). Investments in equipment, in particular, picked up again (+2.1%). The contribution made by foreign trade to net economic growth was slightly positive in the first half of the year. The overall positive development of the labour market continues to be the basis for the development of the domestic economy. That said, stimuli for growth in the first half of the year also came from low interest rates and the slightly lower oil prices. The German economy is continuing to grow in the second half of the year. The pace of growth, however, will be somewhat lower. Business confidence remains very strong. Growth in employment is however likely to calm down a bit. It is expected that output in industry and construction will also be more moderate.

The global economy is continuing to pick up speed over the course of the year. Global industrial output has been continuing on an upward trend since February 2017. There is dynamic growth in the Asian emerging economies. Advanced economies have also picked up steam. Global indicators of market sentiment show increasing optimism. Economic expectations for the eurozone have continued to brighten. In the United States, growth has normalised after experiencing a weak first quarter. Economic growth in Japan increased in the second quarter of the year. In terms of the emerging economies, China is registering more constant growth rates again. The economies of Russia and Brazil are benefitting from the increase in prices for raw materials. Both countries were able to overcome their period of recession. Overall, global economic growth in 2017 is therefore expected to be higher than last year. Like other organisations did previously, the IMF stated in its outlook for July that it expects the global economy to grow by 3.5%.

The trend in German exports keeps pointing slightly upwards. According to balance-of-payments statistics from the Bundesbank, Germany’s exports of goods and services in July 2017 rose slightly by 0.2% in current prices, compared to the previous month. Measured by the more meaningful three-month comparison, the growth in exports was more significant (1.3%). Imports expanded by 2.1 % in July. In the three-month comparison, imports rose by +1.2% over the preceding quarter, equalling the growth in exports during the same period. The current account surplus accumulated since the beginning of the year continues to be noticeably lower than a year before. The national indicators on foreign trade and the global economic recovery point to a further moderate expansion in German exports despite the strength of the euro.

Strong industrial activity in the first half of the year lost some momentum during the summer months. After a decline in June, industrial output in July increased only slightly by 0.3%. It therefore remains to be seen whether the dynamic development experienced in the first half of the year will continue in the autumn. While the orders received in recent months indicate a somewhat slower pace of growth, the improved ifo business climate in the manufacturing sector and the strong automobile production in August suggest a good third quarter. Construction output rose by 0.5% in July, but on the whole it has been rather weak since spring. Despite a decline in new orders for the construction industry proper, which fell by 2.6% in the second quarter, the mood in this sector remained good. In the construction industry’s view, both the current situation and the outlook for the coming months are very positive. Capacity utilisation in this sector is above average, which is now also reflected in the development of the construction prices.

Consumer spending remains an important pillar of the economy. Retail revenues in July fell by 1.2%, but continued to point upwards in the three-month comparison which gives a better indication of where the development is heading. Turnover in the vehicle sector also continued to develop dynamically in June. Despite slightly higher consumer prices, which were 1.8% higher in August than in the same month last year, consumer sentiment rose further and reached a new high in August. It is therefore expected that consumer spending will continue to grow. However, the somewhat clouded mood in the retail sector indicates that growth could slow down a bit after the unusually strong second quarter.

The labour market developed favourably and the economic outlook remains positive. The seasonally adjusted level of employment has been continuously rising by 40-50,000 since February; the increase for July was 42,000. According to the unadjusted figures, there were 44.4 million gainfully active people in Germany, or 1.6% more than a year ago. In June, employment subject to the payment of social security contributions again expanded more strongly (+53,000 people) than gainful activity in general. Additional jobs are currently being created in almost all sectors of the economy. Registered unemployment in August rose slightly due to the summer holidays. According to the unadjusted figures, this meant that just under 2.54 million people were registered as unemployed, 139,000 fewer than a year before. Underemployment was somewhat lower than in July. Seasonally adjusted, unemployment and underemployment figures for August were again slightly lower compared to the previous month. These positive developments, however, should not hide the fact that there are still problems that need to be resolved given that regional disparities in unemployment figures remain very high. Moreover, the reduction of long-term unemployment, which still affected 895,000 people in August, and the integration of refugees still present 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 October 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 39th week of 2017.

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[1] The report is based on statistical data that were available as of 11 September 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.