Die wirtschaftliche Entwicklung im Inland: Expansion bleibt robust
The German economy continued to expand in the first six months of 2016. The current annualized growth in gross domestic product (GDP) is roughly in line with the growth rate of potential output. However, the underlying economic drivers shifted from domestic to foreign demand in the second quarter of the year. The recent improvement in net trade, though, is primarily the result of lower imports, while the exports expanded at a somewhat slower pace. Overall, economic growth was driven by the service sector, which accounted for the majority of new jobs created in the first half of the current year. Over the forecast period, GDP is projected to grow at roughly the same pace as potential output. At the same time, household consumption growth is expected to lose momentum due to the gradual phasing out of positive real income effects stemming from the sharp decline in prices of crude oil. However, given the further increase in employment, consumer spending will remain on an upward trend. Moreover, supported by the stance of credit conditions and low returns on alternative investments, residential construction is likely to grow particularly strong in the coming years. Higher construction costs resulting from a greater degree of capacity utilization should, however, dampen somewhat investment in new buildings. Investments in equipment are also expected to expand, although at a more moderate pace than in previous economic upturns. Supported by a projected strengthening in world trade, German exports are also likely to pick up gradually. Nonetheless, net trade is unlikely to make a positive contribution to overall economic growth. In sum, we forecast GDP growth of 1.9% this year. German economy is projected to grow by a further 1.4% in 2017 and 1.6% in 2018. The slower GDP growth in 2017 compared with 2016 results mainly from the reduced number of working days. German labor market continued to improve in the first six months of the current year. Over the forecast period, however, employment and unemployment figures are likely to diverge. Thus, while employment levels will continue to improve throughout the forecast period, although at a slower pace, unemployment is likely to increase. The reason for this is that asylum seekers and refugees are increasingly given access to the labor market, whereas their sustained integration into a job might be hampered by qualification discrepancies and insufficient language skills. Against this background, the unemployment is projected to increase from 6.1% this year to 6.3% in 2018. Subdued domestic inflationary pressure is still determined by persistently low world prices for energy. Thus, CPI inflation grew most recently by only 0.4%, while core inflation reached 1.2%. Over the forecast horizon, inflation is expected to rise gradually. On the one hand, the dampening effect of low energy prices is likely to dissipate in the near term. On the other hand, the rise in unit labor costs is expected to be passed on to consumers. The resulting outlook for inflation this year is therefore of only 0.4%. In the coming years inflation rate is expected to increase by 1.6% and 1.7%, respectively. Given the positive economic and earnings outlook, general government will continue to record large budgetary surpluses. While government revenues are expected to increase since the upswing is tax efficient, interest payments are projected to decrease as a result of very low or even negative interest rates on the bond markets. Moreover, the fiscal policy stance is likely to be tightened somewhat in the coming years.
Döhrn, R., G. Barabas, A. Fuest, H. Gebhardt, P. Jäger, M. Micheli and S. Rujin (2016), Die wirtschaftliche Entwicklung im Inland: Expansion bleibt robust. RWI Konjunkturberichte, 67, 3, 25-64