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The economic situation in Germany in January 2017

2017-01-12 11:02:29

In 2016, the German economy posted solid growth of 1.9% in an unsteady external economic environment, following a 1.7% increase in GDP in the previous year.[1][2]Economic growth was thus slightly stronger than predicted in the German government?s autumn projection. In statistical terms, this development was driven by domestic demand. Government and private spending, in particular, but also construction investment rose considerably. Investment in equipment rose as well, albeit to a lesser extent. Driven by strong domestic demand, imports rose more strongly than exports, resulting in foreign trade making a slightly negative contribution to growth.

The positive annual result underscores that economic activity in Germany picked up in the final quarter of the 2016. The period of sluggish economic development in the third quarter has passed. This is also suggested by the robust industrial production and sales figures. Furthermore, construction activity has developed positively in recent months, and the external economic environment has brightened somewhat. Overall, economic activity appears to be sound and strongly driven by domestic demand.

The prospects for the global economy have slightly improved. Global industrial output is continuing to rise. The economy of the United States of America picked up speed in the second half of 2016. Economic output in the European Union is rising moderately but steadily. Even the GDP of the United Kingdom increased rather significantly as a result of the depreciation of the pound following the Brexit referendum. Overall, growth in China is tending to further decline but remains comparably strong. The major emerging economies exporting raw materials Russia and Brazil are likely to gradually overcome the recession. On the whole, global economic growth in 2016 is likely to have been lower in year-on-year terms due to a weak first half of the year. Following a 2.9% increase in 2016, the OECD expects global GDP to climb to 3.3% in 2017. However, the economy still faces significant uncertainties.

Given the slight improvement in global economic activity, German exports passed the period of weakness experienced in summer and, by the end of 2016, tended slightly upwards again. Exports in goods and services rose strongly by 3.1% in November compared to the previous month (in seasonally adjusted terms). Imports increased even more, rising by 3.3% in nominal terms. The three-month comparison, which is less susceptible to fluctuations, showed the same results. Imports ( 3.2%) expanded faster than exports ( 2.2%). Overall, foreign trade is currently more likely to slightly dampen economic growth. National short-term economic indicators for foreign trade, such as new industrial orders, export expectations of business and real effective exchange rates, in conjunction with the global economic outlook point to an upturn in exports, even though a moderate one.

Output in the goods-producing sector rose slightly by 0.4% in November compared with the preceding month[3] while industrial output increased by 0.4% and construction industry proper sector output by 1.5%. While output of industrial intermediate goods and consumer goods grew by 0.9% and 0.3% respectively, the output of capital goods remained almost unchanged (-0.1%). The trend in industrial output is pointing slightly upwards. As an average for the months of October/November, industrial output was 0.8% above the average level seen in the third quarter of 2016. Output in the construction sector was 1.6% higher. New industrial orders are indicative of a further improvement. Comparing the average figures for October/November with those for the third quarter, industrial orders rose by 3.7%. This increase resulted from various factors. Domestic orders increased by 4.3%. Eurozone orders fell by 0.6% while orders from outside the eurozone soared by 5.8%. Both new orders and indicators of market sentiment are indicative of solid growth in output at the end of the year and of a good start to 2017.

In 2016, there was a strong increase of 2.0% in consumer spending (price-adjusted). It is likely that there was also significant growth in the final quarter of the year. Retail sales in November dropped by 1.8% in comparison with the previous month. However, the latter was particularly strong, with an increase of 2.5%. Trade in vehicles is expected to have been somewhat weaker in the fourth quarter. Sales in vehicles fell by 1.5% in October and the trend in the number of newly registered vehicles was weak towards the end of the year. Nonetheless, the mood amongst retailers and consumers remains very good.

The labour market developed favourably and the economic outlook remains positive. Gainful employment continued to increase (seasonally adjusted). It stood at around 43.8 million in November, representing an increase of 0.7 % on the previous year (unadjusted figures). The trend in jobs requiring the payment of social-insurance contributions had considerably slowed since June, even though the figures in October were still 1.2% higher than those in the preceding year. The leading indicators, however, continue to suggest a high demand for workers but it will become more difficult to match supply and demand. Unemployment dropped by 17,000 in December in seasonally adjusted terms. According to the unadjusted figures, this meant that 2.57 million people were registered as unemployed. In terms of refugees who have access to the labour market, unemployment increased gradually even though many of them had acquired relevant job skills through their participation in employment measures.

Note: A detailed report and commentary on the overall situation and trends in the German economy will be published in the February 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 in the course of the 5th calendar week of 2017.

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