Two workers in a car factory

Weak start to the third quarter for the German economy

The German economy made a weak start to the third quarter following fairly robust growth in the spring. Writing in the latest Monthly Report, the Bundesbank economists attribute this primarily to the automotive sector’s sharp cut-back in production in July. The Bank’s experts go on to say that the ongoing positive sentiment among businesses, which according to Ifo Institute surveys also improved again in the industrial sector recently, points to a temporary lull. Moreover, they explain that the upturn in Germany is likely to be essentially intact, not least because domestic economic activity remains buoyant.

Automotive sector beset by problems

After seasonal adjustment, July industrial output fell by 1¾% on the month. It was therefore 1½% down on the level of the second quarter of 2018. In particular, car manufacturers saw a significant drop in output, with production falling by 6¾% percent. One key factor behind this were problems related to the switch to new, uniform EU-wide mandatory emissions tests for newly registered vehicles. The Monthly Report notes that “the pace of aggregate growth is likely to pick up again considerably once the changeover problems in the automotive sector have been overcome”.

Other industrial sectors such as the manufacture of basic metals and fabricated metal products likewise saw production declines in July. By contrast, the mechanical engineering sector maintained its average output level of the second quarter. Manufacturers of chemicals and pharmaceuticals registered substantial output growth of 2½%. 

Robust expansion in construction output

Construction output displayed a robust increase in July, rising 2½% over the previous month in seasonally adjusted terms. The main driver here was very strong growth in finishing trades. This contrasted with the main construction industry, which primarily includes shell construction work and road construction, where the level of activity did not exceed that of the previous quarter.

The services sectors provided the economy with positive impulses. According to the Bundesbank’s Monthly Report, this was accompanied by buoyant employment growth. Seasonally adjusted employment rose somewhat more strongly again in July than in the second quarter, when expansion remained comparatively moderate. In the opinion of the Bundesbank’s economists, this is chiefly attributable to the continuing strong rise in jobs subject to social security contributions.