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

© iStock.com/blackred

  • The German economy continued to grow quite rapidly in Q3 of this year. The global economy is now creating a greater stimulus again.
  • The industrial sector is developing well. Companies’ order books and the sentiment indicators are providing a positive outlook for the coming months.
  • Private consumption continues to be at a high level. With energy prices having stabilised in the course of the year, the rise in consumer prices is now at a normal level again.
  • The positive development on the labour market is continuing. Demand for labour continues to be high across many sectors of the economy. Unemployment and underemployment are both somewhat decreasing. At the same time, however, there are persistent structural challenges on the labour market.

In the third quarter of 2017, the German economy continued its rapid growth. Germany’s GDP grew by 0.8% after adjustment for price, seasonal and the number of calendar days. [1][2] This figure compares to 0.6% growth in Q2 and to 0.9 % for Q1, in the latter case after having again been adjusted upwards. Global demand for industrial goods is back on the rise and has provided a key impetus for this dynamic upswing. Much of the growth generated by the demand side in Q3 came from foreign trade and from investment. It is therefore likely that the manufacturing sector, in particular, has seen a strong increase in its output. The indicators suggest that this upswing will continue in the last quarter of 2017. The business climate within the commercial sector and in the services industries is almost at a record-level high. The construction industry is operating at near-maximum capacity, order books in the manufacturing sector are filling up, and the services industries are creating new jobs. Parallel to this, levels of uncertainty have decreased.

The global economy has picked up speed over the course of this year. The global indicators of sentiment suggest that there is growing confidence in the world economy. Industrial production is on a rise again after a short blip in August, which means that it is back on the previous positive trend. It recently stood 3.8 % higher than in the preceding year. There is dynamic growth in Asian emerging economies, but the strongest improvement came from the advanced economies. The eurozone economy was able to nearly uphold the high level of activity seen in Q2 throughout Q3, adding 0.6 %. GDP growth in the United States in Q3 was similar, at 0.7 %. The Japanese economy picked up speed at a noticeable level in Q2. Among the emerging economies, China was a country that posted a more constant speed of economic development. Altogether it is therefore likely that the global economy will have grown considerably faster by the end of this year compared to 2016 levels.

According to balance-of-payments statistics published by the Bundesbank, there was a decrease by 2.2 % in Germany’s exports of goods and services in current prices in September 2017, compared to the preceding month. However, the figures for the entire quarter show that there was a 1.2 % increase. Imports rose in September, albeit more slowly, at 1.8%. Over the entire quarter, imports grew by 0.2 %, which is less than the comparative figure for exports. The current account surplus accumulated since the beginning of the year continues to be noticeably lower than in the preceding year. The national indicators on foreign trade and investment and the global economic recovery suggest that German exports are likely to continue to grow, despite the rise in value of the euro. Due to strong domestic demand, which has resulted in greater imports, the impact of net foreign demand on growth will probably be neutral this year.

The industrial sector is having a dynamic autumn. In fact, the rate of economic growth in the sector has even picked up further compared to what had been a strong first semester. Both industrial output and turnover figures grew by 1.7% in Q3. Growth is being experienced by almost all industrial sectors and can therefore be considered to be broad-based. The fact that order-book entries rose by a very strong 3.6% in Q3 and that the business climate is also being perceived as positive suggests that the positive trend is likely to continue. Even though interest rate levels have remained low, the construction sector’s output dropped by 1.0% in Q3, compared to the high levels it had reached at the beginning of the year. In this context, it is important to note that the sector is operating at near-maximum capacity. Surveys conducted by ifo Institute suggest that a growing number of construction firms are held back by a lack of skilled labour.

Private consumption was a key driver of economic growth in the first semester of 2017. It is likely to have been at a somewhat lower level in Q3, ready to pick up again. Retail turnover picked up +0.5% in September following what was a weaker performance during the summer holiday season, which meant that the overall figures for Q3 translate into a more moderate +0.3 %. Turnover in the car trade increased by a mere 0.2 % in August after falling 1.0 % in July. The figures for September are not yet available. For these reasons, the ifo indicators of the business climate saw a marked deterioration in Q3. However, retailers proved to be much more optimistic come October. The index measuring the climate for private consumption continues to be very positive – despite the fact that prices grew by 1.6 % between the beginning of the year and October.

The labour market is continuing to look good, as are the prospects for finding a job. Gainful employment (after adjustment for seasonal effects) continues to be one the rise, even though the increase seen since Q2 this year has been more moderate than that of last year’s winter semester. This September, the figure grew by 41,000 persons. Year-on-year, the increase totted up to 650,000 in September. Jobs subject to social security contributions have seen an even more dynamic development. The respective figure, adjusted for seasonal effects, grew by 74,000 persons in August. The leading indicators published by the Federal Employment Agency, ifo Institute, and the Institute for Employment Research all suggest that demand for labour is set to remain at a high level across many different sectors. Both the unemployment and underemployment rate (adjusted for seasonal effects) fell in October, each by around 11,000 individuals. According to the unadjusted figures, unemployment dropped to 2.39 million, which is the lowest figure ever to be recorded in post-reunification Germany. The unemployment rate is set to continue to fall, albeit perhaps a little more slowly. This is on account of the fact that migrants entering the job market after completing their integration and language classes tend to need some time before they find employment. Other challenges that continue to need addressing are long-term unemployment and the fact that joblessness is more prevalent in regions that are structurally weak.

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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 December 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 48th week of 2017.

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[1] Preliminary data issued by the Federal Statistical Office on 14 November 2017. Detailed figures will be published on 23 November.
[2] The report is based on statistical data that was available as of 14 November 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.