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

© iStock.com/blackred

  • In 2019, the German economy continued to grow for the 10th year in a row. However, economic momentum has slowed down noticeably. Over the year, gross domestic product grew by 0.6% in price-adjusted terms.
  • At the turn of year, there were initial signs that the economy is picking up again. While the period of weakness in the industrial sector has not yet passed, there are positive signs as new orders are starting to stabilise and business expectations are brightening. The boom in the construction sector is continuing.
  • The indicators of consumer spending are sending mixed signals for the fourth quarter. However, disposable income is continuing to rise strongly.
  • The labour market remains robust, even though the weak economic activity has recently had a stronger impact again.

In 2019, the German economy continued to grow for the 10th year in a row. However, economic momentum has slowed down noticeably. This is due in particular to the weakness of the industrial sector. Over the year, overall economic output grew by 0.6%. [1] While this was slightly more than recently expected, it was significantly less than in the five previous years, in which gross domestic product grew by an average of about 2.0% per year. Nevertheless, the level of employment continued to rise quite strongly, up 400,000, reaching a record number of 45.3 million people in work.

At the beginning of the new year, the German economy has not yet recovered from its slowdown. While industry is being affected by sluggish global trade growth, most companies in the services and construction sectors are still on an upward growth path. Gross domestic product therefore increased only slightly in the second half of 2019. However, first signs of improvement are gradually beginning to emerge. In industry, new orders and sales have begun to stabilise at a low level in recent months. At the same time, business expectations have also brightened somewhat. This suggests that industrial activity will soon reach its turning point. However, the external economic environment remains marked by significant uncertainties. [2]

The global economy continues to be affected by the downturn in industrial activity, not least due to protectionist policies. For example, global industrial output fell slightly in October compared with the previous month, falling below its prior-year level for the first time since the financial crisis. At the same time, despite a slight increase in October, global trade in goods is also expected to decline for the whole of the year. This represents a decline for the first time in ten years. Although the purchasing managers’ index for the global economy published by J. P. Morgan / IHS Markit closed in 2019 with a further increase, the sub-index for industry recently declined somewhat and was only slightly above the growth threshold of 50 points. In view of the economic outlook based on current indicators, international organisations are predicting only slightly faster global economic development for this year and the next. Global economic growth is, however, continuing to trend upwards.

Not least due to the weakness of the stimuli from the global economic environment, recent figures show a flat development in German exports. The prospects for German exports remain subdued. Exports of goods and services in November fell sharply in month-on-month terms, down 3.8%, after seasonal adjustment and in current prices. However, there was a small increase of 0.1% in the two-month comparison, which should be similar in real terms, assuming stable export prices. The ifo export expectations of December 2019 showed a slightly positive balance, reflecting the most upbeat business expectations seen over the past ten months. Seasonally adjusted and in current prices, imports of goods and services in November also fell significantly in comparison with October (-2.5%) and also declined slightly in the two-month comparison (-0.3%).

Industry has not yet been able to emerge from its phase of economic weakness. However, new orders are starting to stabilise and the downbeat business outlook has been improving for several months. The trend in industrial activity is therefore expected to brighten somewhat in the coming months. The goods-producing sector increased its overall output by 1.1% in November, following a weak performance in the previous month. Industrial and construction output grew by 1.0% and 2.6% respectively. Output in energy generation decreased by 0.8%. The two-month comparison for October/November compared with August/September is still showing a decline of 0.7% in the goods-producing industries. Within the industrial sector, falls were recorded in particular in the automotive and mechanical engineering sectors (-4.3% and -2.5% respectively). New orders showed a minimal plus overall in the two-month comparison, with the impetus coming from the eurozone. Business expectations have been improving since late summer. The construction industry is still booming.

Consumer spending remains a reliable pillar of the domestic economy. This is not least due to the high level of employment and the noticeable increase in disposable income. The latter was 3.4% higher in the third quarter of 2019 than a year ago. However, current indicators suggest that consumer spending will probably slow down temporarily in the final quarter of the year. After a weak start to the fourth quarter, retail turnover (excluding vehicles) rose by 2.1% in November. On average, however, retail sales are slightly below the level of the third quarter. New registrations of passenger cars rose in the fourth quarter overall by 0.8%. By contrast, registrations by private owners, who are the main drivers of consumer spending, declined. The business climate in the retail sector did not change in the fourth quarter compared to the previous quarter and on balance remains positive and noticeably above its long-term average. The price climate remains relatively calm. The inflation rate in 2019 is expected to be 1.4%, following 1.8% in the previous year. Declining fuel prices played an important role in slowing down inflation.

The subdued economic activity has recently had a stronger impact on the labour market again. In seasonally adjusted terms, the number of unemployed in November was only slightly up on the previous month, rising by 13,000. However, as in the previous month, the increase in jobs subject to social security contributions was quite strong in October (+41,000). In the manufacturing sector, especially in the metal and electrical industries and the steel industry, the number of workers subject to social security contributions in October declined noticeably (-9,000). Unemployment is on a slight upward trend. In December, it increased by 8,000 persons in seasonally adjusted terms. At 2.23 million, the number of persons registered as unemployed (unadjusted figure) was 18,000 higher in the year-on-year comparison. The level of underemployment also increased slightly, up by 6,000 persons. In October, 84,000 persons received cyclical short-time work allowance, which was slightly more than the figure in the previous months. In November, the figure for people in cyclical short-time work remained unchanged at 49,000. The leading indicators show a robust labour market, but have worsened somewhat overall. They suggest only a moderate increase in employment and a slight rise in unemployment.

Note:
Further information on the current economic situation will be published in the January 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 at the end of the 4th calendar week of 2020.

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[1] Press release by the Federal Statistical Office of 15 January 2020.
[2] This report is based on statistical data that were available as of 15 January 2020. 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.