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Frankfurt am Main | 23.10.2017

Germany’s strong economic upswing set to continue

In the current issue of the Bundesbank’s Monthly Report, the Bundesbank’s economists report that the German economy continued to increase sharply over the summer and, in the third quarter of 2017, may well have maintained the brisk pace of growth seen in the first six months. According to Federal Statistical Office data, GDP was up by 0.7% on the quarter in the first quarter of 2017 and by 0.6% in the second quarter.

The Bundesbank’s experts believe the industrial sector has probably maintained its role as a crucial pillar of strong economic activity. This is due to buoyant export demand. "Industrial order books are flush", the economists write. By contrast, the Bundesbank believes that the construction sector has probably made no further contribution to aggregate growth. That said, following a very robust first six months, the economists still expect construction activity to be able to maintain the high level previously reached.

Retail sales were fairly lacklustre of late, according to the Bundesbank. The Monthly Report states that private consumption may have grown somewhat more moderately following the strong uptick in the final quarter of 2016 and first quarter of 2017. Consumer sentiment is very good, however, and the outlook for the labour market and incomes is favourable. The Bundesbank’s experts therefore do not expect a sustained deterioration in the propensity to consume.

Strong increase in motor vehicle production

According to the Monthly Report, industrial output posted exceptionally strong growth in August. After seasonal adjustment, it was up 3¼% from the previous month. Taking the average of July and August, output likewise increased sharply by 1¾% compared with the level of the second quarter. Motor vehicle manufacturers saw particularly strong growth in output; at 4½%, it more than made up for the rather modest development over the preceding few months. According to the report, capital goods output was up by 2%, and intermediate and consumer goods producers (+1¾% and +1½%) also reported substantial growth in production.

The Bundesbank’s economists write that industrial turnover in August even rose marginally more strongly than output (+3½%) in seasonally adjusted terms. The growth in demand in July and August mainly took effect abroad, with the Bundesbank experts writing that "turnover increased strongly both in the euro area and the non-euro-area countries". In August, nominal exports of goods were also up sharply on the month (+3¼%).

Extremely large increase in number of jobs subject to social security contributions

According to the Monthly Report, the situation on the German labour market is still developing favourably. In August, the seasonally adjusted number of persons in work overall in Germany went up by 64,000 on the month. 692,000 more persons are in employment than the same month of the previous year. "The extremely large increase in the number of jobs subject to social security contributions has remained responsible for this favourable development throughout", the Monthly Report states. Indicators such as the Ifo employment barometer and the Federal Employment Agency’s BA-X job index suggest the positive job growth is set to continue in the next few months, write the Bundesbank’s experts.

According to the Federal Employment Agency, seasonally adjusted unemployment is clearly down on the previous month. 2.51 million persons were registered as unemployed in September, with the unemployment rate declining by 0.1 percentage point to 5.6 percentage points. Compared with the same month one year earlier, there were 159,000 fewer persons out of work and the unemployment rate was 0.4 percentage point lower.

Consumer prices – as measured by the Harmonised Index of Consumer Prices (HICP) – rose by a seasonally adjusted 0.3% in September, according to the Monthly Report, due primarily to higher prices for refined petroleum products. Services, including rents, and food prices also became slightly more expensive. HICP inflation was up by 1.8% on the year.

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