May issue of the Monthly Report: Rosy prospects for the German economy

According to the current issue of the Monthly Report, the robust growth in the German economy is set to continue. The exceptionally optimistic sentiment in the German economy and among households together with the favourable order situation in industry and construction suggest that strong growth is likely to persist in the second quarter, the Bundesbank’s experts predict. The report also states that enterprises’ expansive recruitment policy should continue in the coming months. The trend seen over the past few months may thus be sustained. Real gross domestic product (GDP) expanded by 0.6% in the first quarter of 2017, for instance, according to figures compiled by the Federal Statistical Office. The German economy grew by 0.4% in the last three months of 2016.

Private consumption remains on expansionary course

The strengthened growth in the first quarter of 2017 reportedly stems mainly from activity in the industrial sector, which saw an increased order intake in the fourth quarter of 2016 and first quarter of 2017. In the light of this, the industrial sector emerged from the period of weakness it experienced in the second half of 2016, the report states. Another driver of economic growth cited in the report was the construction sector, which stepped up its activity distinctly given the high demand for housing, in particular. Lively business activity in the services sectors also supported growth, the economists report. They write that private consumption remained on an expansionary course, even though prices had risen considerably at the start of the year and had thus restricted consumers’ financial leeway. The fact that there was no slump in consumption in spite of this should be seen in the context of the very healthy labour market situation, the economists note.

Foreign demand for German products also developed well in the reporting period. This applied equally to demand from other euro-area countries and from non-euro-area countries, which saw an even greater increase in deliveries, "with very considerable sales growth being recorded in the United States," the Monthly Report states. Furthermore, it continues, trade with Russia stood out in particular after posting buoyant growth. Imports also rose steeply in terms of value in the first quarter of 2017, according to the report.

Positive developments in the euro area

In the view of the Bundesbank’s experts, the euro-area economy also performed well. "Most of the euro-area member states recorded positive GDP growth rates at the beginning of the year," write the economists. This aggregate economic upturn could continue at a similar pace in the second quarter, according to the Bundesbank’s forecast.