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The economic situation in Germany in November 2016

2016-11-11 09:47:03

The German economy remains on an upwards trajectory. [1] In the second half of the year, the pace of growth is likely to be slightly slower than in the first. [2] After the Brexit vote and the US presidential elections, the global economic environment is full of uncertainties. However, significant economic disruption is currently not to be expected any time soon. Overall economic output in Germany is likely to have increased again in the third quarter. Output in the goods-producing sector has at the least stabilised in the third quarter. The labour market, however, has recently developed at a more moderate pace. This is likely to lead to slower but nonetheless continued growth in the services sector. However, there are already signs that there will be a certain level of economic recovery over the next few months. Important forces that drive the German domestic economy are still active and prospects for foreign trade are gradually improving. The business sentiment, measured in terms of the ifo Business Climate Indicator, has significantly improved for the second time in a row following the slump in August.

The external economic environment is still uncertain. Overall, however, the prospects for the global economy have slightly improved. Global industrial output grew in the summer thanks to slightly more dynamism in the emerging economies. In the United States, the economy became more dynamic in the third quarter thanks to annualised growth of its gross domestic product (GDP) of 2.9%. According to preliminary estimates, GDP in the EU28 is likely to have increased by 0.4% over the previous quarter. The GDP of the United Kingdom was able to increase rather significantly, growing by 0.5%. The growth of the world economy is likely to be somewhat lower compared to last year due to a weak first half of the year in 2016. According to its prognosis in October, the International Monetary Fund is expecting an increase in global GDP of 3.1% this year. Next year, global economic growth is likely to rise slightly, reaching 3.4%. Major emerging economies exporting raw materials Russia and Brazil are likely to gradually overcome the recession. Overall, growth in China is declining, but remains comparably strong. Industrialised countries are likely to experience an increased rate of growth over the next year. The downward risks and uncertainties in the external economic environment, however, remain high. 

Export activity was highly volatile during the summer. After the increase in August, exports of goods declined in September by 0.7% (seas. adj.). In the third quarter, exports virtually stagnated overall ( 0.1%).  In contrast to the nominal drop of 0.5% (seas. adj.) in September, imports of goods significantly increased ( 1.4%) in the third quarter. This resulted in a positive balance of trade in goods of €68.4 billion (seas. adj.) in the third quarter, €2.7 billion less than in the second quarter. The contribution to growth from foreign trade is therefore likely to have been slightly negative in the third quarter. Indicators suggest a moderate recovery of exports. Industrial orders from abroad noticeably increased in Q3, growing by 2.4%. Current growth expectations for the German sales markets point to a slight improvement in foreign trade.

Development in industrial output has recently been unsteady. After a significant increase in the preceding month, both industrial output (-1.7%) and sales (-1.3%) dropped again in September. Manufacturers of capital goods in particular had poorer results than in August. The fluctuations are not least attributable to workers taking off days to bridge the gap between a public holiday and a weekend, as well as to the fact that works holidays this year have fallen on non-typical days, which are not completely taken account of in the usual seasonal adjustment methods. In general, the situation in industry seems to have stabilised in the third quarter. Production levels in the third quarter were at the very least able to be held at the same level as the second quarter ( 0.0%). The rise in the number of orders in the third quarter ( 0.5%) and the brightening of indicators of market sentiment suggest that industrial activity will gradually improve. Though construction output decreased by 1.5% in September, overall it showed a positive development in the third quarter ( 0.9%). This is likely to continue despite a slight decrease in orders. The mood in the construction sector is at an all-time high. 

Positive trends on the labour market are continuing. Employment has continuously increased this year, though following the revision of data, we see that it did not develop as dynamically as had previously been reported, especially in the summer months. The positive trend in employment subject to social security contributions was interrupted in June and July, but slowly resumed in August. Employment in September sat at 43.8 million and was thus 0.9% higher than a year ago. The number of registered unemployed dropped by 13,000 (seas. adj.) in October. According to the unadjusted figures, the number of unemployed is 2.54 million. Reducing unemployment rates further is being slowed by the increased access of refugees to the labour market. This is being addressed through considerable expanding labour-market measures. Demand for labour remains at a very high level. The labour market is likely to continue to provide positive stimuli for overall economic development.

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