The German economy is likely to have picked up significant momentum in the first quarter the Bundesbank writes in its latest Monthly Report. Both the timely accessible sentiment indicators and the "hard" economic data published so far paint a favourable picture.

According to the report, industrial output posted a steep rise and sentiment in the manufacturing sector is extremely optimistic. This is reflected in the Ifo business climate index for the sector, which in March reached its highest level since the summer of 2011. According to the Bundesbank, this, together with the steep rise in new orders overall in recent months, indicates that the buoyant industrial activity is likely to continue for the time being. In line with this, the report states that real exports rose significantly of late and industrial enterprises estimate the future outlook for exports as very favourable. Private consumption is likely to have remained a mainstay of growth on the back of positive labour market developments and the upbeat sentiment among consumers.

The production index for the construction sector reported a notable increase in February. This index of the Federal Statistical Office, which measures the monthly output of the construction sector, rose by a seasonally adjusted 13½% in February. The Bundesbank economists note in the Monthly Report that this increase is only of limited informative value in economic terms due to the annual adjustment of reporting enterprises. According to the Bundesbank, however, this jump indicates "that growth in construction activity in recent months was probably understated".

Other topics

In addition to the current economic conditions, the Monthly Report takes a look at two further key topics. It describes the role of banks, non-banks and the central bank in the money creation process. Furthermore, it analyses the impact of demographic change and immigration on the German economy's potential output.