12 Dec BMWI: Economical Situation_Germany_Oct_2019
The German economy remains soft. The global cyclical downturn is affecting the German economy. While there are no signs of a cyclical crisis, indicators do not suggest a turnaround as yet.
Industrial output and new industrial orders were trending downwards, whilst construction output remained flat at a high level.
German exports were continuing their slight decline. On the other hand, public and private spending are still providing a substantial boost to the economy.
Growth in jobs on the labour market is slowing due to the subdued economic activity. Most recent figures show a surprising slight fall in what is already a low level of unemployment.
The German economy remains soft. Its level of economic activity is currently stuck at roughly the existing level. The fall in value creation in industry, which remains on a downward path, is largely offset by growth in services and construction. The relevant cyclical indicators do not yet signal a fundamental change in the cyclical situation. However, a stronger downturn or even a pronounced recession is currently not to be expected. The export-oriented German industry continues to be faced with weak global trade, flat global industrial output, and a global softening of demand for vehicles. This is affecting the propensity to invest in Germany and feeding through to domestic demand for intermediate and capital goods. The impact on the less export-dependent parts of the domestic economy has so far been relatively small. At the same time, private and public-sector consumer demand as well as demand for construction services are providing a steady boost to the economy.
The global economy remains sluggish. Against the background of protectionist measures and the unresolved issue of Brexit, world trade shrank further between June and July. Whilst industrial output was cut back further in the developed economies, it picked up some speed in the emerging economies, particularly in Asia. However, the IHS Markit PMI indicator of sentiment for the global economy industry fell below its growth threshold despite a slight pick-up. In view of the smouldering trade conflicts and the tough geopolitical environment, the international organisations are assuming that the development in the global economy will be weaker, but still positive.
This global slowdown is continuing to affect Germany’s foreign trade. For example, between July and August exports of goods and services dropped by 2.4% in seasonally adjusted terms and in current prices. In the two-month comparison, growth is pretty much flat (+0.1%). Judging by the ifo export expectations, the companies are not anticipating a pick-up in exports in the coming months. The drop in September moved the index of export expectations to its lowest level since the financial crisis. Imports of goods and services fell by 1.2% (seasonally adjusted and in current prices) in August, despite the robust domestic economy, and by 1.0% in the two-month comparison.
Despite a slight recovery, latest figures show the industrial sector pointing downwards, whilst the construction industry is continuing to thrive. In August, output in the goods-producing industry increased slightly, by +0.3%. Industrial output was up 0.7%, and construction sector output fell by 1.5%. The two-month comparison, however, shows construction expanding by 0.5%. The manufacturing sector registered a drop in output of 0.9%. Here, all three major industrial sectors recorded declines: capital goods 0.6%, intermediate goods 1.1% and consumer goods 1.2 %. The national indicators are not suggestive of a speedy industrial recovery. In August, new industrial orders were 1.7% below their average level in the second quarter. The uncertain global economic environment is continuing to depress business sentiment.
By contrast, private-sector consumption remains an important pillar of the domestic economy. Retail sales (excluding vehicles) rose by 0.5% between July and August. In the June/July two-month comparison, they were up 2.8% in year-on-year terms (adjusted for calendar days). New car registrations rose by 3.5% in the third quarter, but a weak final month saw a 4.7% drop in sales to private car-owners. On balance, the business climate in the retail sector remains positive and is better than the long-term average, even though it worsened slightly in September.
The clear slowdown in the rise in employment seen since March continued into August. Only 10,000 more people were in employment than in July. The year-on-year increase in unadjusted figures has halved to 333,000 people within a 1½ year period. With an increase of 46,000 jobs, the rise in employment subject to social insurance contributions was surprisingly strong in July. Unemployment dropped by 10,000 in September following three months in which it was virtually unchanged. In unadjusted figures, it dropped to around 2.2 million in the course of the autumn pick-up. The trend in underemployment is similar. The leading indicators suggest that the slower increase in employment will continue while unemployment will rise slightly.
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