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The economic situation in Germany in August 2016

2016-08-11 09:16:14

Growth in Germany remains robust. It is true that the economic dynamism did slow somewhat in the second quarter, but this had been expected following the very strong expansion of 0.7% in gross domestic product in the first quarter. Due to the mild weather, construction output had been very much higher than usual. As a consequence, the pick-up in construction activity in the spring was appreciably weaker. This slowed GDP growth in the second quarter. In seasonally adjusted terms, industrial output was lower than the average of the first quarter. The rise in employment is continuing, and is particularly being seen in the services sectors. On the demand side, the development in exports has slowed somewhat. Consumer spending is also not quite as dynamic as it was in the preceding quarters. Following the sharp expansion in the first quarter, the companies probably reduced their investments in plant and machinery to some extent. Despite the Brexit referendum in the United Kingdom, the business climate in the manufacturing sector has only deteriorated slightly. It is true that expectations are somewhat down, but the assessment of the current situation has slightly improved. The imponderables following the British vote are increasing the level of uncertainty in the business sector. However, the German economy is in good shape and, not least thanks to the geographical diversification of German exports, has repeatedly proved able to adapt to new situations.

The global economy remains sluggish. In the United States, growth was much lower than expected in the second quarter. The preliminary estimate for the eurozone was moderate growth of 0.3%. For the United Kingdom, surprisingly strong growth of 0.6% over the preceding quarter was reported. However, this referred to the period before the Brexit referendum. The first leading indicators have deteriorated significantly following the Brexit vote. Overall, the downside risks to the economy have gained ground. Many analysts have therefore scaled back their expectations for growth in the coming year, particularly for the United Kingdom, but also for the eurozone. There continues to be no sustainable upturn in sight for the Japanese economy. China is continuing to report high but slowing growth. The recession in Brazil seems to be gradually weakening. At present, the latest leading indicators for the global economy are suggestive of a continuation of the moderate growth.

Output in the goods-producing industries picked up some pace towards the end of the second quarter. Junes output was up 0.8% over the preceding month. A considerable rise in industrial output ( 1.5%) contrasted with a fall in the construction sector ( 0.5%). There were increases in output of capital goods ( 3.5%) and consumer goods ( 1.2%), whereas the manufacturers of intermediate goods recorded a slight decline (-0.7%). Energy generation was cut back (-2.7%). In the second quarter, industrial output fell slightly compared with the preceding quarter (-0.7%). The development in new industrial orders is rather flat at present. In view of the development in new orders and the mood in industry, at best a moderate uptrend is expected in the coming months. Output in the construction sector in the second quarter dropped appreciably (-4.3%) following what had been a very strong first quarter due to the weather. However, the good situation on the order books of the construction industry is indicative that the sector will continue to grow.

Consumer spending probably increased by less in the second quarter than in the preceding periods. The volume of turnover in the retail trade failed to expand in the second quarter (-0.3%), the first time that this has happened for more than a year, and recent trends suggest that it is tending to soften. Latest figures show that the trade in vehicles was not able to continue its long-running upward trend. In May, turnover was 1.4% down on the preceding months figure; in the three-month comparison the drop in revenue was 0.9%. In contrast, there was a positive trend in the number of new registrations of passenger cars, despite a setback in July. Overall, the business climate in the retail sector remains stable at a high level, and consumer sentiment remains good.

The expansion of employment subject to social security contributions is continuing unabated and is resulting in a further rise in gainful employment. The number of people in gainful activity rose by 1.2% over the same month last year, and reached a new record level of approximately 43.7 million people in June. In seasonally adjusted terms, 45,000 more people were employed than in May. Due to the summer holidays, registered unemployment rose slightly to 2.66 million people in July, but in seasonally adjusted terms the gradual reduction in unemployment is continuing. The expanded labour market policy measures have also contributed towards this. Underemployment is continuing to rise in seasonally adjusted terms, not least due to the high influx of refugees. Demand for labour remains at a very high level. The leading indicators are providing optimistic signals for the labour market and suggest a continuation of the rise in employment.

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