Publication - Winter 2017 Economic Forecast - Germany
GERMANY Robust momentum amid new challenges
Supported by robust employment and consumption, the German economy is forecast to maintain its momentum over the forecast horizon, although the possible threat of trade barriers with key partners pose significant downward risks. The solid labour market, resilient exports, and booming construction are expected to provide a boost to growth and support equipment investment.
The current-account surplus is projected to ease slightly, as imports increase more than exports. The budget surplus is set to decrease but remains supported by buoyant revenues and decreasing interest payments.
Growth has picked up
Germany’s economy growth strengthened further in 2016. Gross domestic product (GDP) increased by 1.9% after 1.7% in 2015. Private consumption continued to increase at 2.0%. Public consumption and investment rose markedly, due largely but not exclusively to expenditure for refugees. Private investment growth was primarily driven by housing investment. Net foreign trade made a small negative contribution, as imports increased more than exports. Available indicators suggest that economic activity strengthened further in the fourth quarter of 2016 and this growth momentum is likely to continue in the coming quarters.
Survey indicators for services, industry and construction improved further in late 2016; as has consumer confidence. The robust labour market, favourable financing conditions, continued expansion of construction activity, and further public expenditure increases are expected to sustain the rate of economic growth. Overall, real GDP is expected to increase by 1.6% in 2017, slowed down by fewer working days, and 1.8% in 2018. The slightly negative output gap is expected to close over the forecast horizon.
Consumption growth to remain strong
Employment is expected to continue increasing but at a slower pace as the labour market is close to full employment. The integration of the refugees arriving since 2015 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 recognised refugees will add to the labour force, preventing unemployment from falling further below its historically low level. With energy prices rising again, real household consumption is forecast to slow down somewhat, but to remain relatively strong thanks to the continued rise in employment and wages. The latter will be boosted by the tightening labour market. The household saving rate is expected to remain high. Government consumption growth is expected to remain relatively strong in support of the refugees Germany has sheltered.
page source http://ec.europa.eu/info/
