- At an average of 1.5%, economic growth in Germany has been relatively strong in 2014.
- Following a phase of stagnation in the second and third quarter, economic activity is moderately rising again. The mood in industry is improving. Industrial orders, sales and output are likely to have increased in the final quarter of 2014.
- The labour market is continuing to develop favourably. The number of people in work continues to rise and unemployment is declining. This leads to rising incomes and is boosting consumer spending.
- In this context, an additional stimulus is deriving from the weak euro and the drop in oil prises.
In 2014 as a whole, overall economic output in Germany was relatively strong. It grew by 1.5% in price-adjusted terms which was considerably more than in the two preceding years. [1] The basis for this growth has been the increase in consumer spending on the demand side (+1.1 %). Additional stimuli came from investment in equipment (+3.7%), construction (3.3%) and foreign trade which contributed 0.4 percentage points to growth. [2] Following dynamic growth in the winter half-year of 2013/2014, economic activity declined however in spring 2014. The external economic environment had become distinctly gloomier. At the end of 2014, the economy started to recover again in a restrained manner. The sentiment indicators have improved considerably. Industrial orders, sales and output are likely to have increased in the fourth quarter. Employment continued to grow fairly strongly in the past months. The drop in oil prices is also affecting consumer prices and is boosting real disposable incomes. While investment activities still remain restrained, the brightening of the business climate in trade and industry, however, points to improvement. Overall, there are increased signs of a stronger recovery.
Likewise, the growth rate of the global economy is likely to gradually pick up some speed again after declining in the summer half-year of 2014. However, due to numerous structural issues, the global economy will not grow as strongly as in former periods of recovery, and there continue to be various significant downward risks . The sluggish recovery in the eurozone and Japan, in particular, contributed to this downturn. The United States, the United Kingdom and a number of emerging countries, however, were able to maintain their rate of growth. While economic activity in Asia slowed somewhat, the emerging countries in Latin America, Africa and the Middle East have started to overcome their period of economic weakness. The decline in oil prices is leading to higher real incomes in the importing countries but is having a negative effect on the development of incomes in the oil exporting countries. On balance, this is likely to provide a limited positive stimulus to the global economy.
Against this background, German foreign trade developed positively but not very dynamically. The record result achieved in exports of goods in October could not be exceeded in November. In seasonally adjusted terms, exports fell by 2.1%. The trend in exports, however, continues to point upwards. Imports of goods rose by 1.5% in November. Here again, the positive trend continued. The short-term export expectations of industry have notably brightened since September. Foreign orders and sales likewise developed positively. The depreciation of the euro is significantly improving the price competitiveness of the German economy.
The leading sentiment indicators in the goods-producing sector brightened at the end of the year. Industrial output, sales and orders showed first signs of improvement. While overall output in the goods-producing sector in November was slightly lower than in October (-0.1%), the production level in October/November was however clearly above the average level in the third quarter. [3] While output in the construction sector weakened up to November (-0.6%), industrial output rose slightly by 0.3% for the third month in succession. In terms of sales, foreign demand provided the stimulus for this growth. In Germany, sales in capital goods, in particular, rose notably in the last three reporting months. In contrast, sales in intermediate and capital goods trended downwards. Despite the decline of 2.4%, which was not least due to the small number of large-scale orders, industrial orders have already moved along an upward trend. Again, foreign demand provided the stimulus for growth. In the construction sector, however, there are still no signs of a turnaround. Despite the slight increase in orders in October (+0.6 %), the trend in new orders for the construction industry proper continued to decline. In view of the continued favourable environment for construction, a longer-term downturn is not to be expected. Overall, the indicators in the goods-producing sector have slightly improved in recent months.
Consumer spending is continuing to boost domestic demand. In the third quarter of 2014, the positive trend on the labour market led to the strongest increase in real wages in three years. Bolstered by lower energy prices, incomes rose significantly by 1.8% over the previous year. Following the weak summer half-year, sales in retail trade (excluding trade in motor vehicles) in October and November grew strongly, pointing to positive figures for the final quarter. Recent data of the ifo Business Climate Index support this assumption: In December, retailers expected a much better business climate than in the two preceding months. However, business expectations have declined significantly. In contrast, consumer climate remained clearly positive rising to its highest level in eight years.
The labour market is continuing to develop favourably. Unemployment declined in December by 27,000 in seasonally adjusted terms. The number of unemployed rose to 2.76 million due to seasonal factors. The number of people employed in jobs subject to social security contributions grew strongly by 42,000 in October, and the number of gainfully active people increased by 11,000 in November. According to the unadjusted figures, this meant that again more than 43 million people were in work in Germany. Since leading labour market indicators tended to show some improvement, the positive trend is likely to continue in the coming months.
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Note:
A detailed report and commentary on the overall situation anrendd 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 2015.
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[1] The report is based on statistical data that were available as of 15 January 2015.
[2] Preliminary data issued by the Federal Statistical Office on 15 January 2015.
[3] Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted in line with the Census X-12-ARIMA procedure for calendar-day and seasonal variations.
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