A car mechanic performs a check

Economic output could have contracted again

In the third quarter of 2019, economic output in Germany could have contracted slightly on the previous quarter. According to the Bundesbank’s latest Monthly Report, this is mainly due to continued weakness in export-based industry. By contrast, sectors with a stronger domestic focus continued to provide impetus. Retail sales, for example, suggested that households’ strong appetite for consumption remained undimmed up until the end of the period under review. Consumers’ income prospects remain favourable due to the ongoing positive situation in the labour market, which means Germany’s economic dichotomy continues. In the Bundesbank's view, leading indicators currently show few signs of a sustained revival in exports and a stabilisation in industry. “There is therefore a growing threat that the downturn there will increasingly spill over to more domestically oriented sectors”, write the Bank's economists. However, there are no signs so far of a recession in the sense of a significant, broad-based and persistent decline in economic output with underutilisation of capacity.  

Industrial production clearly up in August

Industrial production in August recorded a significant increase, rising by a seasonally adjusted ¾% on the previous month, but on an average of July and August it was nonetheless distinctly below the average of the second quarter. The production of intermediate and consumer goods showed a steep decline. By contrast, the output of capital goods stagnated, with the output of medical devices and materials providing impetus. Production in the automotive sector contracted strongly, however. The renewed tightening of standards for new registrations from September 2019 may have played a minor role here.

Steep decline in construction output

There was a steep month-on-month decline in construction output in August after seasonal adjustment, and on an average of July and August a slight contraction was also recorded compared with the second quarter. By contrast, orders received in July in the main construction sector rose perceptibly on the quarter. Ifo Institute surveys also indicate that construction activity is still basically good. “Both sentiment in the main construction sector and equipment utilisation are close to their historic peak levels”, write the Bundesbank economists.

Slow growth in employment

Employment in Germany has continued to grow throughout the reporting period, albeit only marginally. In August, there were 10,000 more persons in work in seasonally adjusted terms than in the previous month. This is an increase of 333,000 compared to the same month of the previous year. The number of jobs subject to social security contributions showed significantly stronger growth than overall employment. According to the Monthly Report, this was due mainly to the number of persons exclusively in low-paid part-time employment and self-employed persons, which has been in decline for some time now. Registered unemployment was down again slightly in September for the first time in four months. After seasonal adjustment, 2.28 million people were officially registered as unemployed with the Federal Labour Agency, around 10,000 fewer than in August, and the unemployment rate was 5.0%, as in the previous month. In September 2019, the number of unemployed persons fell by 22,000 on the year. The unemployment barometer of the Institute for Employment Research (IAB) indicates that unemployment might edge up again slightly in the next few months.

Slight rise in consumer prices

After seasonal adjustment, consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) rose slightly in September on the month. Food prices went down slightly. “However, industrial goods excluding energy became slightly more expensive and prices for services experienced a somewhat more significant increase”, the Bundesbank’s experts write. Prices for energy remained unchanged despite higher crude oil prices.