Research Dept. News
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Monthly Report, num 359 - July-August 2012
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European union - Germany
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Germany withstands the European recession
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The German economy is likely to slow up noticeably in the second quarter.
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The slowdown in world trade and increasing tension in the euro area have hit the recovery of the German economy over the last few months. Numerous indicators, both real and based on opinion, have worsened. Economic growth is therefore likely to moderate in the second quarter after an expansionary quarter-on-quarter of 0.5% in the period of January-March. For 2012, we forecast an annual increase in GDP of 0.8%, which contrasts with a decline in the euro area.
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Germany's inflation rate falls to below 2% and reinforces consumer confidence.
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Growth in the German economy is supported by domestic demand. Household consumption remains firm due to job creation and the prospect of an increase in disposable income. In fact, in April the level of employment continued to rise and the unemployment rate fell to 5.4%, the lowest figure for the last few decades. Demand for jobs, measured by the BA-X indicator, shows some loss of steam but is still at a high level. Also inflation, which fell below 2% in May for the first time since December 2010, was well received. Consumer confidence therefore improved a little in May and consolidated at a figure slightly above its historical average.
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Retail sales rose by 0.6% in April compared to the previous month in real terms, seasonally adjusted and corrected for calendar effects. However, automobile sales fell by 4.8% in May compared with the same month last year. On the whole, household consumption is expected to continue growing, albeit at a slow pace. With regard to investment, although it is being stimulated by the low interest rates, increasing uncertainty over the last few months is slowing this up. In April, the industrial production of capital goods posted a year-on-year rise of 1.3%, with a slowing trend.
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Higher wage rises in Germany could help to restart European growth.
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The foreign sector continues to reflect the competitive strength of Germany's economy, helped by the reforms undertaken over the last few years. In April, goods exports increased by 3.4% year-on-year, compared with a drop of 1.0% for imports. Compared with the previous month, foreign sales fell by 1.7% seasonally adjusted and corrected for calendar effects, while purchases dropped by 4.8%. The trade surplus was therefore 14.4 billion euros for the month, a year-on-year rise of 33.3%. For its part, the current account surplus increased by 49.3% compared to April 2010.
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From the point of view of supply, April saw a contraction in industrial production compared to the preceding month. In the two month period of March-April, secondary sector production rose by 0.4% compared with the same period last year. For their part, new orders dropped by 1.9% in April compared with the previous month, but in March-April they posted an increase of 2.6% on the two previous months, thanks particularly to demand from outside the euro area. Construction in April dropped by 6.0% compared with March, after a strong upswing that month. However, new orders in March recorded a year-on-year rise of 6.0% in real terms. In May, confidence deteriorated both in industry and in construction and services. However, it remained above normal levels in all these sectors.
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On the other hand, in the last few weeks analysts have been suggesting that the German economy should contribute more to restarting European growth which, in turn, will also benefit Germany. Greater wage rises have been proposed, insofar as permitted by increased productivity, to boost demand and thereby raise the sales of products of its trading partners in the euro area.
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