Research Dept. News
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Monthly Report, num 358 - June 2012
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European union - Germany
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GDP provides a pleasant surprise in the first quarter in Germany
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The GDP figures for the first quarter confirm that the decline in activity in the fourth quarter of 2011 was a temporary bad patch and that the German engine has started to move ahead again. In fact, the 0.5% quarter-on-quarter growth exceeded expectations and placed the year-on-year rate of change at 1.2%, nevertheless a sign of a slowing trend. In May many opinion indicators, such as the ZEW and Ifo, recorded an abrupt fall, affected by the intensification of the uncertain climate in the euro area. We have therefore raised our average growth forecast for the year only slightly to 0.6% in 2012 as a whole.
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In May, Germany's leading indicators post an abrupt fall, affected by Europe's uncertainty.
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The rise in GDP in the first quarter was particularly helped by the foreign sector. In fact, the 1.7% increase quarter-on-quarter in exports, due especially to demand from the emerging countries, and stagnated imports led to a contribution of 0.9 points to the quarter-on-quarter expansion. Also private consumption, which rose by 0.4% in the quarter, provided a positive contribution. However, investment, both of capital goods and construction, which suffered from the bad weather in February, saw a drop.
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The favourable performance by the labour market and the rise in disposable income continue to support private consumption.
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Regarding the second quarter, the outlook for consumption is quite favourable, supported by the expectation of a rise in disposable income and in the level of employment. In fact, the labour market continues to perform well. In the first quarter employment was 1.5% above the level for a year earlier, while the number of unemployed people fell. Both the greater flexibility achieved after the labour reforms and the moderate behaviour of wages have boosted the labour market.
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In fact, there are even signs of unfilled job vacancies in some branches. For this reason, in mid-May the German government passed another law to help qualified immigrants from other countries in the European Union enter the country by creating the so-called «blue card».
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From the point of view of supply, industrial production rose in March and posted a 2.2% increase in orders, improving the outlook. The euro's recent depreciation might also act as a boost for the sector. With regard to construction, February's slump due to the bad weather picked up again in March. Orders increased by 10.0% in February compared with twelve months before and in real terms, a sign of a favourable trend in the future.
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Although it's true that the increase in German imports helps to reduce current account deficits with its EU partners and boosts growth, more voices have started to be heard pointing to its insufficiency and suggesting that more stimuli might be needed for German growth. Higher wage increases have therefore been proposed. Moreover, the relative defeat of the Christian Democrat party in the regional elections of North Rhine-Westphalia could be put down to the government's austerity policy. In spite of these signs, no clear change in direction for economic policy can be seen.
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Germany's 2013 budget reduces the bureaucratic burden for firms but does not show any clear change in direction to stimulate growth.
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Some of the new elements in the proposed budget for 2013 approved by the government in May are the reduction in the obligation to conserve tax and accounting documentation from ten to eight years, extendable to seven in the future. It is calculated that firms will save 1.7 billion euros in the first phase of this new measure. On the other hand, the tax regime for electric cars has also been improved, with deductions on the cost of batteries, to boost their development.
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