Research Dept. News
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Monthly Report, num 356 - April 2012
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European union - Germany
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A modest tone for the German economy at the start of 2012
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Some signs of weakness mar the largely favourable outlook for the German economy.
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The economic indicators available point, on the whole, to a moderate expansion in Germany's economy in the first quarter of the year. The recovery underway would therefore avoid a technical recession after the slight decline recorded in the fourth quarter of 2011. However, it should be noted that some signs of weakness have appeared which can be partly put down to the high levels reached by oil prices.
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Germany's industrial production grows more than expected in January but the short-term outlook is not encouraging.
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Concerning demand, consumption appears lacklustre in the first few months of the year. Both retail sales and the industrial production of consumer goods, as well as passenger car registrations recorded drops year-on-year in January, although automobile sales stabilized in February. However, consumer confidence improved in the first two months, standing slightly above its historic average. Consumption should therefore continue to rise, boosted by the expectations of an increase in household disposable income.
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With regard to investment, the outlook is quite favourable, supported by forecasts of growth in demand and by low interest rates. With regard to capital goods, investment demand will come both from replacement and also the enlargement of production capacity. In January, the industrial production of capital goods posted a strong trend and its annual rate of change reached 7.1%.
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Foreign trade also started the year well. Exports of goods rose by 2.3% compared to the previous month, seasonally adjusted, and 9.3% compared with the same month in 2011. For their part, imports recorded a 2.4% rise month- on-month and a year-on-year increase of 6.3%. In this way, in January the trade surplus widened to 13.1 billion euros, up 29.7% on twelve months before.
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From the point of view of supply, industrial production provided a pleasant surprise in the first month of 2012 by posting a month-on-month increase of 1.4%. However, the gradual fall in industrial orders suggests that the secondary sector will lose steam in the next period. This weakness might be offset by construction, which grew by 4.3% in January compared with the previous month. With regard to services, in January hotels and restaurants posted a year-on-year increase of 0.8% in their real turnover. In the first two months, tertiary sector confidence picked up compared with the last quarter of 2011, but scarcely reached its normal level.
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The labour market, which usually lags behind the overall trend, continued to create jobs in January. However, in February the BA-X employment demand indicator fell to some extent, although still at a high level. The upward pressures of labour costs might have played a part in this. For its part, inflation rose by two tenths of a percentage point in February to 2.3% year-on-year, boosted by energy prices. It therefore interrupted its downward spiral started in October last year. Inflation is likely to fall although an unexpected rise in the price of crude cannot be ruled out.
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The German government approves a programme of reforms to stay in shape.
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Within this mixed scenario, we have kept our annual growth forecast for the German economy in 2012 at 0.5%. This modest growth contrasts with the more unfavourable rates expected for the rest of the largest economies in the euro area and is based on the competitiveness of the German economy. Nonetheless, if the situation of the rest of Europe's economies worsened, Germany would also be affected, in spite of its expansion being based on domestic demand.
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Given this situation, at the start of spring the German government approved a programme of reforms for 2012. This includes the measures at a European level of the Euro Plus Pact. Moreover, in order to strengthen economic performance, the financial conditions for venture capital will be improved and qualified immigration will be easier, among other measures.
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