26 Feb The economic situation in Germany in February 2015
The economic situation in Germany in February 2015
- The period of cyclical weakness experienced last summer has ended. New orders and output in the industrial sector rose in the fourth quarter, and the mood in the companies is brightening.
- The positive trends on the labour market are continuing. This leads to rising incomes and is boosting consumer spending. The consumer climate remains very positive.
- Nevertheless, the external economic environment remains difficult. There is no sign of an end to the Ukraine conflict. The political development in Greece also entails uncertainties. A positive stimulus is coming from the low oil price and the weak euro.
Germany has overcome its period of cyclical weakness.  After the economy more or less stagnated last summer, the indicators currently suggest that it is now picking up speed again. In the fourth quarter, industrial output expanded comparatively strongly, and both the surprisingly positive development in new orders and the much improved business sentiment are indicative of a further acceleration. The weaker euro exchange rate and the extremely low oil price are likely to have contributed towards this. Also, the labour market is continuing to develop positively. A high level of employment, rising real incomes and low interest rates are fostering a high level of consumer demand. Overall, the German government expects this year to see a decent growth rate of 1.5%, mainly driven by domestic demand. At the same time, there are risks to the economic development, in terms of Ukraine, the political development in Greece, and also the international financial and commodities markets. The global economy is continuing to display little dynamism. In November 2014, global industrial output was only 2.5% higher than the preceding year’s figure. Growth in the emerging economies in particular was comparatively slow. For China, the IMF is expecting to see GDP growth weaken further, to 6.8% this year and to 6.3% next year. For various reasons, the Russian economy is facing a deep recession. Amongst the industrial countries, a reliable stimulus is deriving only from the United States and the United Kingdom. In recent months, the Japanese economy has stabilised to some extent, but dynamic growth cannot be expected. At the same time, the recovery in the eurozone remains hesitant. In its latest winter forecast, the European Commission expects 1.3% growth in 2015. On the other hand, the low oil price could result in a stronger pick-up in the world economy. Overall, the IMF and the EU expect the global economy to grow slightly faster, by approx. 3.5% to 3.6%, this year. German foreign business is developing very positively. In December, the volume of exports rose (seasonally adjusted) by 3.4%. In contrast, imports of goods fell slightly, by 0.8%, not least due to the decline in oil prices. In the fourth quarter, both foreign sales and foreign orders rose appreciably, with the strongest stimulus deriving from the eurozone countries. The companies’ export expectations for the coming months have brightened further. The depreciation of the euro was probably a factor here, as it is significantly improving price competitiveness. Against the background of the continuing hesitancy in the recovery of the world economy, the German government expects net foreign demand only to contribute 0.1 percentage points to growth. Germany’s industrial sector has emerged from its period of weakness. Its output rose sharply, by 0.5%, in December – the fourth monthly rise in succession.  There was also a 0.5% expansion in the fourth quarter as a whole. Growth was particularly registered in the field of intermediate and consumer goods, but the output of capital goods also expanded slightly in the fourth quarter. There was a positive development in industrial turnover, which expanded by 0.7% in the final quarter. There were increases in both domestic and foreign business. Furthermore, the industrial sector won more new orders in the last month of 2014 than it had in any of the preceding six Decembers. In the fourth quarter as a whole, the volume of orders was 1.8% higher than in the preceding quarter thanks to the additional demand from Germany and abroad. The main indicators of sentiment, such as the ifo business climate and the ZEW Indicator of Economic Sentiment, improved further. Overall, the indicators suggest that industrial output will expand further. In contrast, there is no sign of a turnaround in the construction sector as yet. Construction output continued to shrink in the fourth quarter. This was due to the development in the finishing trades. Overall output in the construction industry proper developed positively in the fourth quarter. However, the level of order activity in the construction industry proper has been weak since last spring. Rises in October and November suggest that it has stabilised, however. Nevertheless, the mood in the construction industry remains very good in view of the generally good business environment. Consumer spending remains an important pillar of the economy. Last year, consumer spending rose by 1.1% in real terms, thus making a vigorous contribution towards overall growth. The positive development in employment is continuing to result in a tangible rise in disposable income, and thanks to a very moderate development in prices, this is translating into an appreciable gain in purchasing power. This caused retail turnover (excluding vehicles) to rise strongly, by 1.7% in the fourth quarter. In January, the mood in the retail sector improved considerably, and the consumer climate remains at a record level. In view of the favourable environment, the German government expects consumer spending to accelerate further in 2015, rising by 1.6%. The labour market is continuing its positive development into the new year. For seasonal reasons, the number of unemployed rose back above the 3 million mark again, but the seasonally adjusted figure was down by another 9,000. In seasonally adjusted terms, the number of people in employment subject to social security contributions again rose strongly, by 45,000. Employment increased by 22,000 in seasonally adjusted terms in December. According to the unadjusted figures, just under 43 million persons were in work (domestic concept), up more than 400,000 in year-on-year terms. Since leading labour market indicators tended to show some improvement, the positive trend is likely to continue in the coming months.