RWI Konjunkturberichte

The German economy grew steadily in the first half of this year. The growth rates corresponded approximately to the expansion of potential output. Thus, the negative output gap has likely not closed. Private consumption remained the main driver of the economic upturn, although it has lost momentum over time. Most recently, the external balance contributed to a great extent to the economic expansion, after being negative for two consecutive quarters, which is most likely due to the ongoing recovery of the Euro area and the depreciation of the Euro. However, incoming orders indicate that exports will not significantly expand during the next months. In particular orders from outside the Euro area have substantially declined lately. Nevertheless the German economy is likely to keep expanding over the forecast horizon. The income of private households benefits from favourable conditions on the labour market and higher public transfer payments. Hence, private consumption and investments in residential property can be expected to increase considerably. Furthermore, corporate investments are likely to be enhanced more extensively, although not as strong as during past economic upturns. Exports are likely to be influenced by two opposed effects: on the one hand the Euro area economy is recovering, on the other hand emerging market economies are growing at lower rates. Altogether, we expect the German GDP to expand by 1.8 percent this year, and also next year. The rate of growth is likely to decrease during the course of the year as the positive stimulus of declining crude oil prices for the purchasing power subsides. The favourable conditions on the labour market are likely to improve further, although at a slower rate than before. Apparently, the introduction of statutory minimum wages has slowed down employment growth. At the beginning of this year marginal employment has been substantially reduced, whereas employment subject to social insurance contributions has considerably increased, which suggests that employers have substituted these employment relationships to a certain extent. However, in the long run employment will likely be negatively affected considering the extensive increase in labour costs due to the minimum wage in certain sections of the labour market. Next year, current incoming asylum seekers and refugees will gradually be integrated in the labour market. While job vacancies could be filled more quickly, unemployment is likely to rise to a certain degree. Altogether, we expect an unemployment rate of 6.4 percent for this and for next year. In 2014 the budgetary surplus of the state amounted to € 8.9 bn, which equals 0.3 percent of nominal GDP. This year this share is likely to be 0.7 percent. Next year it will be 0.3 percent. This is due to fiscal policy being more expansive and to the additional expenditures resulting from the current inflow of asylum seekers and refugees. The main risks for the German economy arise from the international environment. The slow expansion of international trade appears to be a result of a permanent change in the relation between global trade and global production. Since the Germany economy is exportoriented, this structural change could lead to adjustments, which are not likely to take place without frictions

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