Research Dept. News
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Monthly Report, num 351 - November 2011
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European union - Germany
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Growth prospects ease back for the German economy
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The weakness in economic activity continues in the fourth quarter.
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After the sudden halt in the second quarter, economic activity revived somewhat in the summer. However, leading indicators have continued to get worse over the last few months, reflecting the slowdown of the global economy, which the second exporting country in the world can't manage to get out of.
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In the third quarter, consumption showed a moderate tone, supported by job creation and the increase in the purchasing power of wages. In September, real retail sales without automobiles grew by 0.3% compared with the same month the year before. For their part, passenger car registrations rose by 11.6% in the third quarter in year-on-year terms. However, consumer confidence continued to fall in October, although it was above its long-term average. This was helped by the rise in year-on-year inflation to 2.6% in September, due mostly to energy prices. However, the inflation trend will be downwards.
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The world's second exporter cannot escape from the global slowdown.
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For its part, investment continues to grow. The industrial production of capital equipment increased by 15.4% in the last twelve months up to August. However, the decline in business economic sentiment, affected by the financial upsets, points to a slowdown in the next period.
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German consumer confidence weakens but stands appreciably above its normal level.
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The foreign sector may also contribute to growth in the German economy. In August exports livened up and rose by 3.5% compared with the previous month, seasonally adjusted and corrected for calendar effects, and by 14.6% compared with a year earlier. On the other hand, imports remained at a standstill compared with the preceding month and rose 12.6% year-on-year. Thanks to the trade surplus, the current account posted a positive 7 billion euros, 23% more than in August 2010. However, the outlook of a slowdown in international trade suggests that exports will contribute less to GDP in the coming quarters.
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German industry is strong but tending to run out of steam.
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The first thing we notice from the point of view of supply is the strength of industry. In the period July-August, secondary sector production increased by 3.1% compared to the previous two-month period. However, industrial orders fell in September. Although these were at a high level and the upward trend continues, a loss of steam could be observed. Construction also made progress. Its production rose by 1.4% in the core months of the summer compared to the previous two months, although sector confidence fell slightly in September. Some branches of the services sector did not perform so well. In hotels and restaurants, the number of businesses posted a month-on-month rise in August of 1.5%, after 0.5% in July in real terms and adjusted for seasonal and calendar effects.
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The German government cuts back its 2012 growth forecast to 1%.
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Within this context, in its predictions for autumn the German government increased its growth forecast for 2011 to 2.9%, 3 tenths of a percentage point higher than April's forecasts. However, it cut back its forecast for 2012 by 8 tenths of a percentage point to 1%, indicating the greater risks of the international situation, particularly those caused by the sovereign debt crisis in the periphery of the euro area. Nonetheless, Germany is expected to go on being the engine of Europe, although it will probably run a bit more slowly.
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