German economy in third quarter: strong consumption, weak exports

Customers on a shopping street

According to the Bundesbank, the German economy lost some of its momentum in the third quarter of 2016. Referring to figures from the Federal Statistical Office, the Bundesbank notes in its most recent Monthly Report that real gross domestic product (GDP) in the third quarter grew by only 0.2% on the quarter. Bundesbank economists suspect that this weaker result is attributable, in particular, to a cooling of the services economy, which had been very strong of late. They also observed a change in the factors driving growth: while exports were the key driver of growth in the previous quarter, the main impetus for growth in the third quarter was seen to be the strengthened domestic economy.

According to the Monthly Report, the domestic economy was buoyed above all by government and private consumption. The favourable income and labour market prospects, low energy prices and the unusually high pension adjustment of 4½% with effect from 1 July 2016 gave consumption a strong boost. Exports, by contrast, which had seen a dynamic first half of the year, took something of a breather in the third quarter. However, as stated in the Monthly Report, this affected only exports to countries outside the euro area, particularly to OPEC countries and the United Kingdom.

Dip in the labour market

Bundesbank data show that the previously very good development on the German labour market was subdued between June and August. Furthermore, in contrast to the first and second quarters, the number of persons in gainful employment grew only marginally in the third quarter. Unemployment, meanwhile, fell only slightly. As the Bundesbank’s economists point out, however, this was due in part to the increasing number of refugees registering as job seekers after their applications for asylum had been recognised. Labour market policy measures were not able to completely offset this effect. However, in light of the advance indicators, the Bundesbank’s economists see the prospects for employment growth as favourable.

Positive growth prospects for the final quarter

Following the recent slowdown, the Bundesbank expects economic growth in Germany to pick up considerably in the final quarter of the year. As the Monthly Report states, corporate sentiment is positive on the whole, while manufacturing is enjoying high capacity utilisation and higher incoming orders. Export expectations in the industrial sector lend further weight to their assessment. Furthermore, the Bundesbank’s economists expect the marked rise in private consumption to continue in the final quarter, citing favourable income and labour market prospects as well as positive sentiment among consumers as the driving forces.

Good sales prospects in the euro area

As the Bundesbank’s economists point out, the euro area also saw moderate economic growth in the third quarter. According to the Monthly Report, which cites Eurostat figures, real GDP in the third quarter of 2016 increased by 0.3% on the quarter in seasonally adjusted terms and 1.6% on the year. Based on forward-looking sentiment indicators, the Bundesbank expects there to be a perceptible improvement in sales prospects for industry in the euro area in the coming months. Sentiment in the services sector has also brightened again. One reason for this put forward by the Bundesbank’s economists is that the widely feared negative effects of the referendum in the United Kingdom have not materialised.

Global economy remarkably robust

The global economy in the third quarter proved to be remarkably robust, which the Bundesbank attributes mainly to the perceptible acceleration of US and Japanese economic growth. On account of this robust development, the International Monetary Fund (IMF), too, confirmed its projection of global economic growth of 3.1% this year and 3.4% next year in its World Economic Outlook, published on a half-yearly basis.