Moderate growth in German economy
The German economy grew moderately in the first quarter of 2019. In the Bundesbank’s estimation, however, the still positive development was largely attributable to one-off effects. According to the current Monthly Report for April, the already booming construction sector profited further from the favourable weather in February, for example. Furthermore, private consumption has emerged from the weak spell seen in the second half of 2018, which is reflected in the recent significant rise in retail sales. The report states that consumers have evidently caught up on new car purchases which they had postponed in the autumn due to the limited range of models on offer. The automotive industry was hit by difficulties with the introduction of a new emissions test procedure (Worldwide Harmonised Light Vehicles Test Procedure – WLTP) at the time.
Not taking these one-off effects into consideration, the underlying trend of the German economy nonetheless remains subdued, the Bank’s economists note. They point out that this is mainly due to the protracted downturn in industrial activity:
“New orders plummeted towards the end of the period under review and sentiment among enterprises became even gloomier according to the ifo Institute”.
Industrial output lacklustre
Industrial output remained lacklustre in February and after seasonal adjustment was down slightly by ¼% on the month. German manufacturers of machinery had to cope with particularly significant losses of output, according to the Monthly Report. On an average of January and February, their output was ½% down on the previous quarter. Motor vehicle production was also lower than in the previous quarter.
German industrial orders suffered a strong setback in February 2019 and slumped by 4¼% on the previous month in seasonally adjusted terms. Looking at January and February in aggregate, incoming orders were also down substantially on the previous quarter (-3¾%). There was a particularly strong decline in demand for German products in non-euro area countries (-6½%). Orders for motor vehicles were particularly hard hit (-13¼%). By contrast, motor vehicle orders in euro area countries (+6%) and in Germany (+3¼%) provided positive momentum. According to the Monthly Report, these increases are probably in connection with the WLTP-related catch-up effects. Orders from the euro area declined steeply by 4½% overall, while domestic orders were down by 1%.
In February 2019, German industrial sales were significantly lower in terms of value, with nominal sales down by 1% on the month after seasonal adjustment. However, on an average of January and February, they rose steeply compared with the fourth quarter of 2018 (+1¼%).
Construction activity extraordinarily brisk
Construction output rose very sharply in February 2019, up by 6¾% on the previous month in seasonally adjusted terms. “However, a key reason for this increase is probably the particularly favourable weather in the reporting month”, write the Bundesbank economists. On an average of January and February, construction output was likewise up considerably on the previous quarter (+4¼%). Even leaving aside the positive weather effects, the Bundesbank expects the brisk construction activity in Germany to continue, with even a slight rise of ¼% in new orders in the main construction sector in January 2019 compared with the exceptionally strong level in the previous quarter. The extraordinarily brisk state of construction activity is also reflected in equipment utilisation in the sector, which according to the ifo Institute climbed to a new record high in March.
Robust labour market
According to the Bundesbank’s forecast, the labour market is so far proving to be very robust in the face of the slowdown in economic activity. Employment growth was less strong in February than in the previous month, but still considerable. After seasonal adjustment, the number of persons in employment rose by 39,000 on the month, and 1.1% compared to the same month of the previous year. Registered unemployment showed only a slight decline in March in seasonally adjusted terms, with the unemployment rate decreasing by 0.1 percentage point to 4.9%.