Marginal growth in German economy
The German economy saw only marginal growth in the third quarter of 2019. According to the Bundesbank’s latest Monthly Report, this persistently weak growth – gross domestic product (GDP) was up by 0.1% on the preceding quarter – was due to the ongoing sluggishness in the export-oriented industrial sector; by contrast, the more domestically oriented sectors propped up German economic activity once again. Thus the bifurcation of the German economy continued, according to the report.
Bundesbank experts trace the cause of the low GDP growth back to the dampening stimuli coming from the manufacturing sector, in particular. Meanwhile, the construction sector and business-related services excluding trade are likely to have provided positive effects. Furthermore, according to the report, both retail and wholesale trade went up distinctly. Aggregate demand was boosted mainly by higher private and government consumption expenditure, and exports also showed positive developments compared with the preceding quarter. Bundesbank experts consider the latter to be noteworthy because export activity and industrial output usually track each other fairly closely.
Exports up markedly
In the third quarter of 2019, exports to both euro area countries and non-euro area markets rose, the Bundesbank reports. Impetus from countries outside the euro area was distributed unevenly, however: while the exports of goods to the United Kingdom, Switzerland and the OPEC countries flourished, transactions with China and the newly industrialised economies in Asia contracted substantially. Even more significant was the decrease in exports to Russia, Japan and the South and South East Asian emerging markets.
Industrial output continuing to decline
According to the report, industrial output was down compared with the preceding quarter, shrinking for the fifth quarter in succession. In this context, the production of both intermediate goods and consumer goods decreased significantly. Capital goods saw a smaller decline which, the Bank's experts largely put down to a major setback in the automotive industry. The contraction in this segment was already well above average when the industrial sector’s latest period of weakness began. According to the Bundesbank’s Monthly Report, this was partly due to the especially weak global demand for motor vehicles, with worldwide sales down by 6½% since the fourth quarter of 2017.
“The decline in the number of motor vehicles produced in Germany cannot be put down to this alone,” the Bundesbank reports. According to data provided by the German Association of the Automotive Industry (VDA), this decline was significantly stronger – at just over 17% in seasonally adjusted terms. The Bundesbank experts write that there also appears to have been shifts in production from Germany to other EU countries. The data of the VDA indicate that passenger car production in Germany by German car manufacturers fell by over 9% in 2018, while the corresponding figure increased by just over 8% in other EU countries.
Decreasing labour market momentum
In the assessment of the Bundesbank experts, the German labour market was still fairly robust in the third quarter of 2019. The Monthly Report notes that employment continued to increase, albeit at a considerably slower pace than last year. In the third quarter, there were 37,000 more persons in employment than in the previous quarter. Unemployment remained at a very low level, according to the report. However, the Bundesbank believes that the outlook for the next few months has deteriorated further; this is reflected in the leading indicators for both employment and unemployment.
Slight rise in consumer prices
Consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) rose in the third quarter by a seasonally adjusted 0.3%, the Bundesbank writes in its latest Monthly Report. The Bank’s experts state that while low energy prices curbed this growth, food prices saw a steep rise. Services prices were only up slightly, as were prices of industrial goods excluding energy and food.
“Despite this, annual headline HICP inflation declined significantly overall from 1.7% to 1.1%,” the experts write, adding that this decline was driven by a statistical effect in prices for package holidays.
The Bundesbank expects the current economic slowdown in Germany to continue in the fourth quarter of 2019. However, it is not likely to intensify markedly. There are initial signs that the downward trend in industry could decelerate, the report notes, while the domestic economy will probably continue to provide momentum.