Summary of the December Monthly Report
Outlook for the German economy – macroeconomic projections for 2013 and 2014
The cyclical outlook for the German economy has become gloomier. There are even indications that economic activity may decline in the final quarter of 2012 and the first quarter of 2013. The main factors in this context are a number of difficult adjustment recessions in the euro area along with a slowdown in global economic activity. Nevertheless, there is a realistic prospect that the phase of economic weakness will not persist for all that long and that Germany will soon return to a path of growth. This is predicated on the global economy regaining momentum, continued progress in the reform process in the euro area and the absence of major negative surprises. Even so, given the difficult economic situation in parts of the euro area and widespread uncertainty, economic growth is likely to be lower than assumed hitherto. Still, the sound underlying state of the German economy suggests that it will ride out the temporary lull without suffering major harm, in particular in the labour market.
Following an expansion of 0.7% in real gross domestic product (GDP) in the current year, or 0.9% after adjustment for calendar effects, economic growth could decline to 0.4% on an annual average in 2013 (0.5% after adjustment for calendar effects), before strengthening to 1.9% in 2014. Under these circumstances and assuming a slight downward path for crude oil prices, inflation in Germany should ease. An HICP inflation rate of 2.1% in 2012 could be followed by rates of 1.5% in 2013 and 1.6% in 2014. Excluding energy prices, higher wage agreements would mean the inflation rate rising from 1.6% in 2012 to 1.8% in 2014. The general government budget will probably be close to balance again in 2012 for the first time since the beginning of the economic and financial crisis in 2008. A marked deficit is likely to arise again in the coming year, however, in the wake of the overall economic slowdown. After adjustment for cyclical effects, the deficit ratios in 2013 and 2014 are likely to be more or less unchanged at roughly ½%.
The current projection is characterised by a high degree of uncertainty. It is quite conceivable that the euro area will recover sooner and the world economy will accelerate faster than is assumed in this projection. In that case, there is every prospect that the German economy, in view of its sound underlying condition, will make use of the opportunities that present themselves. The downside risks predominate, however. If global economic growth falls short of expectations or if the debt crisis escalates again in some countries, it is likely that growth will be weaker than in the baseline assumption.
German enterprises’ profitability and financing in 2011
For German enterprises, 2011 was calmer than the turbulent period that preceded it. Turnover expanded as substantially as in 2010, although a rise in costs meant that profitability did not quite match its level at the beginning of the recovery, when it had shot upwards. Unlike in 2010, it was not only the sharply increasing cost of materials that placed a strain on earnings. In the reporting year, there was accelerated growth in staff costs and, for the first time since 2008, there was a year-on-year increase in write-downs again.
In a setting marked by very buoyant activity in their sectors, construction firms and car manufacturers as well as their suppliers were able to make up ground in terms of profitability. By contrast, balance sheet precautions for risks in connection with the change of course in energy policy and losses in energy trading depressed the return of the energy supply companies to a decidedly low level.
In 2011, there were no identifiable major shifts between central balance sheet positions at the aggregate level. Non-financial assets and financial assets expanded at nearly the same pace and, on the liabilities side, equity’s growth lead over loan capital remained comparatively slight. Nevertheless, the threat of insolvency with regard to the non-financial corporate sector as a whole is likely to have receded further. This was due mainly to the fact that construction and trade enterprises as well as firms in the transport and logistics sector managed to effect a marked improvement to what had been their rather weak capital base.
Given declining economic optimism and the fact that the euro-area sovereign debt crisis came to a head again, 2011 saw a marked decline in both the propensity to invest and in equity acquisitions. With internal financing options remaining favourable, this was accompanied by a cutback in outside injections of capital.
Enterprises are currently faced with a number of substantial imponderables, which is probably prompting them to defer wide-reaching decisions – such as major investment decisions. Nevertheless, trade and industry enjoy a structurally good profitability and sound balance sheet structures as essential underlying conditions for a long-term business policy.
Calendar effects on economic activity
Calendar configurations can have a marked impact on economic activity. In relation to the quarterly rate of change in real gross domestic product (GDP), they account for as much as 1 percentage point. In the monthly movements of industrial output, calendar effects are often on a scale of more than 5 percentage points.
With regard to the statistical measurement of calendar effects, a distinction should be made between two aspects. Following European recommendations, patterns that recur annually or become typical of a given month or quarter, are assigned to the seasonal component of a time series. For example, in a month with 31 days, more work is performed and more is consumed on average than in months with 30 days, let alone a month with 28 days. This should be differentiated from effects that result, say, from the shift in the number of working days within the same given month or quarter. In the context of official seasonal adjustment, these are recorded separately as calendar effects.
The forms in which calendar effects appear are manifold and vary depending on economic sector and the type of economic activity which is measured. For a large number of German economic indicators, the working-day model has proved to be effective in quantifying calendar effects. This model takes account of the fact that a working week of five days is usual in Germany, but that production is also continuous in some cases, ie takes place even on public holidays. In the manufacturing sector, for example, one additional working day in the months of January to November thus leads, on average, to a 3.4% higher monthly output. The effect is less marked in December, since production is cut back anyway in the period around Christmas. The scale of activity in other sectors of the economy, such as transport, also follows a working-day pattern.
Retail sales, on the other hand, are influenced more by the number of days on which outlets are open for business. These effects are not equally strong in every month, however. The calendar effect, aggregated across all sectors of the economy, is derived for gross domestic product. A 1% addition to the number of working days leads, on average, to a 0.3% rise in overall output.
Such calendar effects prove to be largely stable across time. The increased use of working time accounts and of more flexible working hours has no noticeable impact on this. Moreover, the estimated relative effects are virtually independent of the cyclical situation. In principle, the effects on output of “bridge days”, the timing of school holidays and weather conditions can also be estimated by calendar adjustment. For example, industrial output on such a “bridge day” is, on average, about one-third lower than on a normal working day. This effect is not independent of the cyclical situation, however. Difficulties in determining a stable correlation also arise when estimating the effects of school holidays. And, in assessing the effects of the weather using calendar models, subsequent catch-up effects are not clearly quantifiable. Accordingly, in official statistics such effects are not assigned to the calendar component, but are shown instead in the summary item “irregular effects” of the relevant seasonally adjusted time series.