RWI Konjunkturberichte

Economic activity in Germany has accelerated at the end of 2013. This positive trend is expected to continue throughout 2014, as indicated by favorable sentiment indicators. However, real economic indicators are improving only slowly, implying that the upswing will be only moderate. Nevertheless, aggregate output is expected to grow strongly in the first quarter because of an unusually high production level in the construction sector resulting from mild weather conditions. Yet, for the second quarter a contraction is expected. Domestic demand will be the driving force of economic developments in 2014. Favorable corporate sentiments are expected to lead to an increase in equipment spending. Furthermore, persistent low interest rates and rising real estate prices are likely to further encourage investments in construction. The expansion of employment is likely to continue so that private consumption expenditure is expected to increase strongly. In contrast, the external sector is not likely to significantly contribute to economic growth. Finally, real GDP is expected to grow by 1.9% this year. If the stimulation of international trade resumes, the upturn is expected to persist in 2015. However, domestic demand is likely to remain the determining factor for the speed of expansion. Gross domestic product is expected to increase by 2.1%. The labor market will benefit from the economic upswing in the course of 2014. The annual average unemployment rate is expected to decrease from 6.9% in 2013 to 6.7% this year. The reduction of unemployment is likely to continue only modestly in 2015. The planned implementation of statutory minimum wages is likely to reduce jobs predominantly in the marginal employment sector.ith capacity utilization rising, inflation will accelerate in 2014 and 2015. Rising real estate prices which result in increased rents will further contribute to higher inflationary pressures. However, the inflation rate is likely to remain moderate in the long term, with an expected rate of 1.2% this year and 1.6% in the next year. The government budget exhibited a small surplus for the year 2013. While fiscal policy is expected to be mildly expansive, public revenues are likely to continue to increase strongly. Thus, government budget will be in balance in 2014, too. For 2015, a surplus is expected of 8 bn € or. 0.3% of GDP. Nonetheless, there are uncertainties involved with these forecasts. First, the economic repercussions of implementing statutory minimum wages are difficult to gauge. Second, political conflicts with Russia resulting from the current crisis in the Ukraine could be detrimental to foreign trade. German economic policy is actually focused predominantly on income distribution issues. The government has announced to expand pensions for some groups and to introduce statutory minimum wages to improve earnings of employees on low incomes. This policy, however, both measures will lead to increased labor costs. This policy could jeopardize the positive outcomes of past labor market reforms which have considerably reduced unemployment during the last ten years.

Link to the document