A car mechanic performs a check

Distinct cooling of German economy

Compared with the beginning of the year, economic output in Germany is likely to have contracted slightly in the second quarter of 2019. According to the current Monthly Report, this is mainly due to the fact that one-off effects, which had been major drivers of growth in the first quarter, petered out and in some cases even had a negative impact. Indeed, construction output has probably contracted after continuing to expand strongly in the first quarter on the back of favourable weather conditions. Moreover, passenger car registrations returned to normal. There had been a sharp rise previously, as car purchases were made which had been postponed in the second half of last year due to supply difficulties. The decline in business with the UK weighed additionally upon already weak exports. In the first quarter, a significant number of purchases were brought forward in the run-up to the original Brexit date at the end of March. Even excluding these negative one-off factors, the underlying cyclical trend remained weak in the second quarter. This was mainly due to the continuing downturn in industry, which is chiefly export-oriented. “Exports and industry are still not showing any signs of a recovery”, the Bundesbank economists write. 

Industrial activity mixed

Industrial output was up significantly in May, rising by 1% in seasonally adjusted terms on the month. However, on an average of April and May, industrial output was considerably lower than the average of the first quarter (-1%) due to the very weak production in April. Production of cars and machines saw a particularly significant decline. Moreover, the order situation in German industry continued to deteriorate.

Decline in construction output

After seasonal adjustment, construction output in May showed a sharp fall on the month. The average for April and May was also considerably lower than the first quarter. The Bundesbank’s experts believe this is probably partly attributable to the rebound effects following the strong activity in the winter months on account of the weather. However, according to the economists, the economic indicators do not suggest a rapid slowdown in construction activity, which is flourishing. Ifo Institute data, for example, indicate that capacity utilisation and the reach of the order books in the main construction sector remained at a very high level.

Further rise in employment

Employment in Germany continued to rise at the end of the period under review. In May, there were 21,000 more persons in work in seasonally adjusted terms than in the previous month, which is an increase of 462,000 compared to the same month of the previous year. According to the Monthly Report, this was due mainly to the substantial growth in jobs subject to social security contributions. Registered unemployment was virtually unchanged in June, with an unemployment rate of 5.0%, as in the previous month. Cyclical short-time working increased in April, but was still at a low level. The labour market barometer of the Institute for Employment Research (IAB) indicates that unemployment might edge up again slightly in the next three months.

Slight rise in consumer prices

Consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) rose in June by a seasonally adjusted 0.1% on the month. “Prices of food, non-energy industrial goods and services were markedly higher”, writes the Bundesbank in its Monthly Report. Energy prices declined as a result of the lower crude oil prices.