Economic boom continues despite temporary lull
Economic output in Germany dipped slightly in the third quarter of 2018. Data from the Federal Statistical Office indicate that real gross domestic product (GDP) decreased by 0.2% on the previous quarter. As the Bundesbank’s latest Monthly Report explains, this was mainly due to a strong temporary one-off effect in the automotive sector as the introduction of an EU-wide emissions test procedure resulted in major problems that led to widespread production stoppages.
“Despite these temporary one-off effects, the economic boom in Germany continues,” write the Bundesbank’s economists.
Slump in motor vehicle production
The Bundesbank’s experts note that the sharp fall in output in the automotive sector meant that manufacturing was a major contributing factor to the weak economic output during the third quarter, with industrial production recording a decline of 1½% in seasonally adjusted terms. According to the Bundesbank’s calculations, this could have depressed GDP growth by an estimated 0.4 percentage point in the third quarter, not factoring in any negative spillover to other sectors through production linkages. Construction output expanded more slowly than in the second quarter, but still showed distinct growth of ½%. There is likely to have been a moderate upturn in the services sector, too, according to the report.
Dampening effects from private consumption
Household consumption expenditure went down in the third quarter. Here, the sharp increase in energy prices is likely to have curbed households' propensity to consume. Retail sales were actually down on the previous quarter, with revenue in the textiles, clothing and footwear trade falling particularly sharply. One of the reasons for this was the extremely hot, dry weather over the summer, according to the Monthly Report.
Having resulted in delivery problems and an increased vehicle tax burden, the new emissions test procedure is likely to have adversely affected motor vehicle sales. The debate about bringing in a ban on motor vehicles with high emissions levels may also have unsettled consumers, leading them to put off making car purchases, the experts report. The massive slump in motor vehicle exports also caused overall exports to decline.
Demand outstrips supply on the labour market
According to the Bundesbank, labour market performance improved during the third quarter. There was a further rise in employment – particularly the number of jobs subject to social security contributions – and the unemployment rate contracted by 0.1 percentage point to 5.1%. The Bundesbank’s economists caution, however, that the sustained high demand for labour is meeting with a labour supply that is growing at a slower pace, which is why immigration has a crucial role to play. In arithmetical terms, they explain, not even half of the additional positions available in August 2018 compared with August 2017 could be filled by German nationals.
“This gap was filled, in particular, by persons from eastern European EU Member States and from the eight main countries of origin of asylum seekers,” they write in the Monthly Report. As the number of migrants has been in decline for quite some time now, labour market tightness is increasing, with the experts warning that it will become increasingly difficult for enterprises to find suitable skilled labour.
Expansion before the year is out
The third quarter saw the rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) rise on the year from 1.9% to 2.1%. Energy and food prices went up, in particular. Excluding these two components, core inflation decreased from 1.2% to 1.1%. The Bundesbank expects the inflation rate to fall in the coming months due to energy and food prices rising at a slower pace.
Following the dip in the third quarter, the Bank’s experts believe that the German economy will return to an expansionary course before the year is out. Output and exports of motor vehicles are thus expected to return to normal.
“In addition, private consumption is expected to re-assume its role as a major economic driver,” the Bundesbank reports.