German economy remains on strong growth trajectory

There is no end in sight for the spell of strong growth in Germany’s economy, the Bundesbank’s experts write in the latest edition of the Bank’s Monthly Report. Given that real gross domestic product (GDP) recorded yet another substantial increase in the third quarter of 2017 – of 0.8 % on the quarter, according to data from the Federal Statistical Office – the Bank’s experts, encouraged by the persistently upbeat indicators, expect Germany to remain on a strong growth trajectory in the fourth quarter of 2017. They put this assessment down to the record-high sentiment in trade and industry, the excellent order situation in industry, and the persistently upbeat consumer confidence. “Sentiment is still ebullient in Germany’s economy,” they write in the November Monthly Report, adding that industry’s order books are also well filled, and predicting that private consumption might also regain fresh momentum as the year draws to a close.

Construction sector operating at capacity limits

For the Bundesbank’s experts, industry is still the main driver of economic growth, its third-quarter growth rate even eclipsing the already vibrant pace of output growth observed in the first six months of the year to stand at a seasonally adjusted 1¾ % on the quarter. Construction output, on the other hand, shrank somewhat following a sharp rise in the first half-year, and growth looks set to be no better than subdued in the fourth quarter as well. Still, the Bundesbank’s economists write, it would be wrong to say that the construction boom is over, given the high production level and the significant backlog of orders. Instead, they argue, the construction sector is increasingly operating at its capacity limits. Many businesses, they write, quite simply cannot find the labour they need.

German exporters are also seeing business expand substantially. “This is a reflection of the ongoing economic upturn in the other euro area countries,” the Bank’s experts explain, pointing to the brisk demand from the euro area. They also note that business with China is booming, while exports to the UK and Russia were down due to a depreciation in those countries’ currencies.

As expected, private consumption was subdued in the third quarter, remaining at roughly the same level as in the previous quarter. Growth in retail sales (excluding motor vehicles) was markedly down on the previous quarter, above all in mail order trade, as consumers spent far less on furniture, other furnishings and household appliances. Consumer spending on information and communication technologies came in higher, however, while trade in textiles and clothing also flourished, and car dealers racked up a significant increase in motor vehicle sales to households.

Capacity utilisation levels high

The Monthly Report notes that imports benefited from lively industrial and export activity, which did much to propel demand for imported intermediate goods, and argues that the high utilisation of production capacity in manufacturing was also responsible for the marked increase in capital goods imports. The volume of imports from other euro area countries, especially, was considerably higher in terms of value.

The Monthly Report goes on to report that the already very good situation in Germany’s labour market improved further in the third quarter of the year, writing that the number of employees subject to social security contributions climbed by 746,000 on the month in August. The Bundesbank’s experts expect that there are now more older people and more women in the labour force. Unemployment fell at a slightly slower pace during the summer than in the preceding quarters, coming in at 5.6 % in October according to Federal Employment Agency figures.