Publication - Autumn 2016 Economic Forecast: Modest growth in challenging times - Germany
Supported by robust employment and consumption, the German economy is forecast to maintain the growth momentum over the forecast horizon although a slight (technical) slowdown is expected next year. The solid labour market, resilient exports and booming construction investment are expected to provide a boost to growth and support equipment investment. The current account surplus is projected to ease slightly while remaining at a historically high level. The budget will remain in surplus supported by a decreasing interest bill and buoyant revenues.
Temporary slowdown after a stronger-thanexpected start in 2016
Germany’s quarter-on-quarter real GDP growth rate slowed from 0.7% in the first quarter of 2016 to 0.4% in the second quarter in seasonally and working day adjusted terms. The contribution of foreign trade strengthened, largely due to a decline in imports. Private and public consumption slowed down, while investment posted a decline.
Economic activity is likely to have grown moderately in the third quarter, supported by factors such as rising employment and household incomes (including pension increases). Monthly indicators for foreign trade, retail sales, industrial production and construction for July and August send mixed signals and point to a temporary standstill. However, a swift recovery in business sentiment and in firms’ employment expectations in September points to sustained activity growth in the coming quarters.
The robust labour market, favourable financing conditions and still sizable expenditure boost linked to immigration are also expected to contribute to growth. 2017 may see a slowdown until the relative weakness of the second half of 2016 is overcome, and also due to fewer working days. Overall, real GDP is expected to increase by 1.9% in 2016, 1.5% in 2017 and 1.7% in 2018.
Consumption growth to remain solid
Employment is expected to continue growing at a steady pace alongside the expansion of the economy. The actual number of asylum seekers in 2015 has turned out significantly lower than originally estimated (890 thousand instead of 1.1 million) and the rate of new arrivals has fallen substantially. The integration of refugees into the labour market will be staggered over a number of years and is not expected to significantly affect employment dynamics over the forecast horizon.
Still, a proportion of them could add to the labour force and marginally slow down the decline in unemployment. With energy prices no longer depressing price dynamics, real household consumption is forecast to slow down somewhat, but to remain relatively strong thanks to the continued rise in employment and real labour incomes. The latter will be boosted by the update of the minimum wage next year.
The household saving rate is expected to remain close to its current high level over the forecast horizon despite the low rates of return. Government consumption growth is expected to slow as the number of asylum seekers arriving declines.
Page source http://ec.europa.eu/
