German economy picking up perceptibly

Germany's economy experienced a strong surge in growth in the first three months of 2016. "Real GDP in the first three months of the year was up 0.7% on the quarter after seasonal and calendar adjustment," the Bundesbank writes in its latest Monthly Report, pointing to figures released by the Federal Statistical Office. Aggregate capacity utilisation had climbed to a multi-year high, boosting enterprises' willingness to step up their investment again. The Bank's economists single out private consumption and buoyant construction activity as the main forces driving economic growth, but, in contrast to the end of 2015, renewed stimulus was coming from exports and foreign investment as well.

Domestic economy showing sustained strength

The Monthly Report describes how economic growth in the first quarter of the year was being propelled by the sharply stronger private consumption activity. Demand was especially strong for passenger cars and for construction materials and furniture, consumption of the latter mirroring the vibrancy of construction activity. Precious little stimulus was generated by the retail sector, meanwhile. The fresh decline in global oil market prices, and also the cheery outlook for the labour market and incomes were the main factors keeping consumer sentiment upbeat overall. Export activity was another source of stimulus for the German economy, the Bank's economists write, pointing especially to the clear rise in export flows to China which, they note, had brought to an end the trend decline that had plagued much of the previous year.

The Federal Statistical Office announced that consumer prices had fallen in April 2016 for the first time since January 2015. On average, the cost of goods and services was 0.1% lower in April 2016 than in the same month last year. Consumer prices were also said to have declined by 0.4% in the month from March to April 2016.

Upbeat labour market

The first three months of 2016 saw sizeable gains in employment, with the number of persons in work in Germany climbing by a seasonally adjusted 0.4% to 43,412,000. This increase was driven mainly by an upturn in jobs subject to social security contributions, the Bank's economists note. By contrast, the number of persons working exclusively in low-paid part-time jobs had dipped slightly. In this context, there was a continuation of the ongoing decline since the introduction of the general statutory minimum wage at the beginning of 2015.

Growth expected to dwindle in spring

The Bundesbank's economists expect the German economy to lose traction in spring. The consistently upbeat labour market, rising income expectations along with stable prices will keep consumption activity buoyant, they write, but the unlikely prospect of a further drop in oil prices leads them to believe that the sizeable purchasing power gains in the past two quarters will dwindle. Nor, they add, was there any guarantee that exports will match their good performance in the first quarter. Recent survey data indicate that enterprises had initially adopted a wait-and-see attitude. All in all, however, the solid underlying cyclical trend would probably remain intact into the second quarter. The Bundesbank will be publishing its new growth forecast for the 2016-18 period at the beginning of June.