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

© iStock.com/blackred

  • The German economy remains fairly flat. However, some initial signals show an increased likelihood of an end to the downturn in industry and thus a gradual improvement across the economy.
  • Industrial output is still trending downwards, whilst new orders seem to be stabilising. Construction output is subject to monthly fluctuations, but remains at a high level.
  • The indicators of consumer spending are restrained at the beginning of the fourth quarter. However, disposable income is continuing to rise.
  • German exports increased significantly both in October and in the third quarter as a whole.
  • Despite the weak economy, latest figures show the labour market developing more positively again.

According to the indicators, the German economy remains fairly flat in the final quarter of the year. However, there are some first glimmers of hope. In the third quarter, economic output rose only marginally, by 0.1% from the preceding quarter.[1] In the services and construction sectors, growth remains solid, mainly driven by domestic factors. However, industry is continuing to suffer from the low global level of investment, triggered not least by the trade conflicts. It is probably yet to bottom out, but its new orders and turnover have stabilised at a low level in recent months. The same goes for the business climate, in which the expectations brightened somewhat in October and November. Not least, exports have picked up speed since the middle of the year. All of this suggests that the industrial sector is gradually stabilising and might even see a slight uptick from the new year. Naturally, the uncertainties remain high in view of the difficult external economic environment, and it therefore is necessary to wait and see the extent to which the fragile positive signals firm up.

The global economy remains affected by the trade disputes and a slow global industrial economy. As of September, world trade had yet to turn the corner; its volume was still below that of the previous year. Also, against a backdrop of regional disparities and monthly fluctuations, global industrial output has yet to show any signs of recovery. The composite global Markit purchasing managers’ index showed some improvement in November. The index registered improvements for both industry and services. Against the background of the current indicators, the international organisations are predicting a slow but positive global economic development for this and next year.

Despite the ongoing softness of the stimuli from the global economic environment, recent figures do show a positive development in German exports. Exports of goods and services rose by 1.1% from September to October, after seasonal adjustment and in current prices. The two-month comparison even shows an increase of 1.8%. Nevertheless, according to the ifo export expectations, most companies are not anticipating a significant rise in German exports in the next few months. Exports actually deteriorated slightly between October and November. Imports of goods and services decreased marginally between September and October by -0.1% in seasonally adjusted terms and in current prices, but also showed a clear rise in the two-month comparison (+1.7%). Given slightly falling import prices, imports presumably expanded by even more in real terms.

The industrial economy remains slow, whilst construction output is still very high, with monthly fluctuations. Overall output in the goods-producing sector dropped by 1.7% in October. Industrial and construction output fell by 1.7% and 2.8% respectively. Energy generation rose by 2.3%. The two-month comparison for September/October compared with July/August shows a drop of 1.1% in the goods-producing industries. Within the industrial sector, falls were recorded in particular in the automotive and mechanical engineering sectors (-2.9% and -2.2% respectively). The leading indicators are suggestive of a bottoming-out. New manufacturing orders and the ifo business climate were flat in recent months.

Consumer spending rose by 0.4% in the third quarter, and was thus a solid pillar of the domestic economy. The substantial increase in disposable income was probably a factor here. It was 3.1% higher than a year before. Retail turnover excluding vehicles, which accounts for roughly a third of consumer spending, fell by 1.9% between September and October whilst remaining at a high level. The two-month comparison also shows a decrease, of 0.9%. New car registrations followed the preceding month’s increase by expanding by another 8.6% in November, and were thus slightly above average. On balance, the business climate in the retail sector is positive and improved appreciably in November. Consumer prices fell by 0.8% between October and November; a major factor here was the seasonally induced fall in package tour prices. The inflation rate remained stable at 1.1%. The clear drops in fuel prices also lowered the annual inflation rate. The core inflation rate rose slightly to 1.6 %.

The labour market was somewhat more robust in October than in the preceding months. The monthly rise in employment stood at 30,000 (seasonally adjusted); this was the largest increase since February. A comparison with the situation a year ago (+320,000 people, unadjusted figures) shows however that the pool of available labour is drying up. The level of employment subject to social security contributions rose by 70,000 from August to September (seasonally adjusted), the highest increase this year. Unemployment fell by 16,000 people in November, to below 2.2 million (unadjusted figures). The level of underemployment also decreased slightly, by 7,000 people. The leading indicators are sending out mixed signals: a rise in employment in services sectors, but a softening in industry. Unemployment could rise slightly.

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[1] The report is based on statistical data that were available as of 13 December 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.