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

© iStock.com/blackred

  • The German economy is currently experiencing a slow period. The subdued global economic development is affecting Germany’s export-oriented economy. While there are no signs of a significant downturn, indicators do not suggest a turnaround as yet.
  • Output in the goods-producing industry was further curtailed. At the same time, new manufacturing orders are continuing on a downward trend. By contrast, the construction sector continues to perform well.
  • German exports are currently flat. On the other hand, public and private spending are providing a boost to the economy.
  • Growth in jobs on the labour market is slowing due to the subdued economic activity; the decline in unemployment, which, overall, is at a low level, did not continue in the recent period.

The German economy is is currently experiencing a slow period. After a good start to 2019 with gross domestic product rising by 0.4% in price-adjusted terms, overall economic output fell by 0.1% in the second quarter. A stronger downturn or even a pronounced recession is currently not to be expected. However, indicators are not suggesting a major change for the better as yet. The export-oriented German industry is continuing to suffer from declining world trade and stagnating global industrial activity. In the second quarter, exports to the European Union and the United Kingdom in particular declined noticeably. The domestic economy will not remain unaffected by this, but has proved to be quite robust so far. Important domestic upward forces are continuing to have an effect, albeit to a somewhat lesser extent. Private and public-sector consumer demand as well as demand for construction services are providing a steady boost to the economy. The uncertainty caused by the trade conflicts and the Brexit process is continuing. However, the global economy is gradually adjusting to the new situation while entrepreneurs are continuing to explore new business opportunities.

The smouldering trade conflicts and the difficult geopolitical environment are continuing to have a dampening effect on the global economy. In June, both global industrial production and world trade reverted back to the downward trend seen since autumn 2018. Although the business sentiment in global industry improved slightly in August, the IHS Markit PMI remains below its growth threshold. The cool ifo global economic climate continued to worsen in the third quarter of 2019. In view of the accumulation of global risks, international organisations are working on the assumption that the development in the global economy will not be very strong, but will still be positive.

Weak global trade is also having an impact on German foreign trade. Although exports of goods and services rose by 1.7% from June to July (in seasonally and price- adjusted terms) and by 0.7% in the two-month comparison, they increased from a lower level. According to ifo export expectations, which improved only slightly in August, most companies are still not expecting further growth in exports in the coming months. Imports of goods and services fell by 0.8% in July, in seasonally adjusted terms and in current prices. In the two-month comparison, they saw a marginal drop of 0.1%.

While the construction industry is still running at full steam, the period of weakness in industry and the energy sector is continuing. Production in the manufacturing sector was cut back again in July (-0.6%). While industrial output decreased by 0.8%, construction output grew by 0.2%. The two-month comparison showed a noticeable decline of 1.3% in industrial output and of 5.6% in energy production. The decline in industrial output was spread broadly across all sectors of the economy. The two-month comparison for the construction industry showed a flat development (-0.2%). Following the weak start to the third quarter, an industrial recovery is not in sight for the time being. The smouldering international trade conflicts and weak foreign demand have resulted in business expectations being rather down-beat. At present, the volume of new industrial orders is clearly below the average for the previous quarter (-1.7%).

By contrast, private-sector consumption remains an important pillar of the domestic economy. After a significant increase of 0.8% in the first quarter, it rose by a further 0.1% in the second quarter. However, retail sales excluding motor vehicles experienced subdued development at the beginning of the third quarter. In July, they fell by 2.2% compared with the previous month. New registrations of passenger cars by private owner groups saw more modest growth in the second quarter following the release of pent-up demand in the first quarter, but increased again in July and August. On balance, the business climate in the retail sector remains positive and is significantly better than the long-term average, even though it worsened slightly in August.

The growth in employment continued in the middle of the year, but at a much slower pace due to the economic slowdown. After an average increase in employment of 44,000 persons per month in the last winter semester (in seasonally adjusted terms), the number of jobs increased by only 14,000 from June to July. Compared to the previous year, however, this number still represents an increase of 374,000 persons in unadjusted figures. At a growth of 11,000 jobs (seasonally adjusted), the increase in employment subject to social insurance contributions also weakened further in June. By contrast, unemployment saw a slight increase of 4,000 persons in August, rising to around 2.3 million in unadjusted figures. Underemployment saw a similar development. The leading indicators suggest that the moderate increase in employment will continue while unemployment will rise slightly.

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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 40th calendar week of 2019.

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[1] The report is based on statistical data that were available as of 13 September 2019. 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 for calendar-day and seasonal variations.