The economic situation in Germany in September 2019

• The German economy is in a weak phase. The subdued global industrial economy is affecting the export-oriented German economy. Although there is no sign of a stronger downturn, the indicators do not show a turnaround.
• Production in the manufacturing industry was further restricted. At the same time, incoming orders in the manufacturing sector are continuing to decline. By contrast, the construction sector continues to perform well.
• German exports are currently developing sideways. By contrast, government and private consumer spending are supporting the economy noticeably.
• In the labor market, job creation is slowing as a result of the economic downturn, and the decline in overall low unemployment has recently not continued.

The German economy is in a weak phase. After a good start to the current year with an increase in the gross domestic product by price-adjusted 0,4%, the overall economic performance weakened in the second quarter by 0,1%. [1] A stronger downturn or even a pronounced recession is currently not expected. However, according to the indicators, no economic turnaround for the better is yet to come. Export-oriented German industry continues to suffer from declining world trade and stagnating global industrial activity. In the second quarter, exports to the European Union and in particular to the United Kingdom declined notably. The domestic economy will not remain unaffected, but so far it has proven to be quite robust. Important internal buoyancy forces continue, albeit somewhat weakened. Private and public consumer demand as well as construction services provide reliable impulses. The uncertainty caused by the trade disputes and the Brexit process is continuing, but the global economy is gradually adapting to the new conditions and the entrepreneurs will continue to look for opportunities.

The smoldering trade conflicts and the difficult geopolitical environment continue to dampen the global economy. In June, both global industrial production and world trade again followed their downward trend since autumn 2018. Sentiment in global industry improved slightly in August; however, the IHS Markit PMI continues to undercut its growth threshold. The undercooled ifo world economic climate has further deteriorated in the third quarter of 2019. In view of the accumulation of global risks, the international organizations assume a less dynamic, but nevertheless upward development for the global economy.

The weakening world trade is also noticeable in German foreign trade. Although exports of goods and services rose seasonally adjusted and in current prices by 1,7% from June to July and by 0,7% in a two-month comparison, this increase was at a weaker level. According to the ifo export expectations, which have only improved slightly in August, a large number of companies are not expecting any further growth in exports in the coming months. Imports of goods and services fell seasonally adjusted in July and in current prices by 0,8%. In the two-month comparison they decreased slightly by 0,1%.

While the construction industry continues to run at full speed, the weak phase in industry and energy continues. Production in the manufacturing industry was reduced again in July (-0,6%). While industrial production decreased by 0,8%, construction output increased by 0,2%. In the two-month comparison, there was a noticeable decline in industry output of 1,3% and energy production of 5,6%. The decline in industry across industries was broadly distributed. In the construction sector, the two-month comparison showed a sideways movement (-0,2%). A recovery in the industrial economy is not in sight for the time being after the weak start into the third quarter. Smoldering international trade conflicts and weak foreign demand are reflected in less optimistic business expectations. The level of industrial new orders is currently noticeably below the average of the previous quarter (-1,7%).

By contrast, private consumer spending remains an important pillar of domestic economic development. After a very significant increase of 0,8% in the first quarter, they continued to increase by 0,1% in the second quarter. However, sales in the retail sector excluding cars started cautiously into the third quarter. In July, they fell by 2,2% month-on-month. New car registrations among private owner groups were more modest in the second quarter in response to catch-up effects in the first quarter, but rebounded in July and August. On balance, the business climate in the retail sector continues to be positive and significantly better than the long-term average, even though it fell slightly in August.

Employment growth continued towards the middle of the year, but was much slower in the light of the economic slowdown. After an average increase in 44.000's seasonally-adjusted workforce per month in the last winter half-year, from June to July it only increased by 14.000 people. Compared to the previous year, however, this means in original numbers still an increase by 374.000 persons. The build-up of employment subject to social insurance contributions also weakened further in June, with a rise in seasonally adjusted 11.000 persons in June. By contrast, seasonally adjusted unemployment rose slightly in August for 4.000 persons, increasing in numbers to around 2,3 million. Underemployment showed a similar picture. The leading indicators signal that moderate employment creation will continue with a slight increase in unemployment.

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Note:
A detailed presentation and commentary on the economic situation and development is published in the October issue of the monthly report "Highlights of Economic Policy". This issue is expected in the 40. Calendar week 2019 can be found on the website of the Federal Ministry of Economics and Energy.

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[1] This report uses data up to 13. September 2019 templates. Unless otherwise stated, these are rates of change compared to the respective previous period on the basis of price-adjusted as well as calendar and seasonally adjusted data.

Selected data on the economic situation
As of: September 2019
PDF: 125 KB