Industrial production in Germany declined in March as cold and wet weather kept building sites shut and production of factory machinery fell. Output, adjusted for seasonal swings and inflation, fell 0.5 percent from February, the Economy Ministry in Berlin said today.
The slower pace of global economic expansion as well as the stronger euro are eroding demand for cars and chemicals made in Germany while a cold Easter offset gains in construction output made during the mild winter. Record oil prices and higher credit costs also whittle away spending power and cloud the investment outlook. Export and manufacturing orders both fell in March.
Construction output fell 12.3 percent in March, the ministry said in a statement. According to the German weather service, March was ``particularly wet'' and the second half ``wintry.'' The production of investment goods fell 1.8 percent in March, while at the same time, energy output gained 5.5 percent in the month and the production of intermediate goods rose 1.1 percent.
Germany's expansion is losing momentum after the collapse of the U.S. subprime mortgage market sparked global writedowns and pushed up lending costs. The International Monetary Fund in Washington last month cut its global growth forecast and said the world economy faces a 25 percent chance of recession.
Factory orders from other euro-area states fell 3.5 percent last month, compared with a 2.1 percent gain from non-euro area countries, the Economy Ministry in Berlin said yesterday. About 40 percent of German exports are shipped to the euro region.
Still, services growth in Germany accelerated in April, the Royal Bank of Scotland Purchasing Managers Index showed this week. The index rose to 54.9 from 51.8 in March and some industry sectors are still weathering the headwinds.
German business confidence declined for the first time in four months in April. Investors also became more pessimistic. European manufacturing growth slowed for a third month in April and confidence dropped to the lowest in 2 1/2 years.
In the euro region as a whole, manufacturing growth slowed for a third month in April and confidence dropped to the lowest in 2 1/2 years. Retail sales fell 1.6 percent in March from a year earlier, the European Union's statistics office said yesterday. That's the biggest drop since at least 1995.
Companies are also grappling with the euro's 13 percent gain against the dollar in the past year, which threatens to erode exports by making them less competitive. The currency hit a record $1.6019 on April 22. Crude oil prices have doubled in the past year and breached $120 per barrel for the first time this week.
The German economy may expand 1.8 percent this year instead of a previously projected 2.2 percent, the leading government- sponsored research institutes said April 17. Growth will slow to 1.4 percent in 2009, less than the economy's long-term average of 1.5 percent, they forecast.
Germany At A Glance, January 2008
Welcome to the German Economy Watch Blog. Below you will find the normal chronological blog posts. But first we would like to present some charts which provide background data and which we hope will help the first time reader better assess and get to grips with the argument being presented here. The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of remaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time. Since this phenomenon is also to be observed in the the two other societes with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here. Basically what we can observe as societies move above the 40 median age mark are a number of stylised facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice. We hope you will find the background data presented here useful in assessing the argument which we are presenting on this blog, which is basically that a key component in the longer term growth stagnation from which Germany is suffering has its roots in the underlying demographics. Basically and in the long run (possibly with a 30 year lag) fertility does matter. Please click on thumbnails for better viewing.
As can be seen from the chart this crucial age group touched its highpoint in 1997/98. This could be thought of as the moment of maximum capacity for the German economy since it includes the crucial 25 to 40 household-former, first-time-homebuyer group. In terms of credit expansion, it is this group which drives a significant part of internal demand.
The age group also includes another important group, the 35 to 50 years one. This group drives an economy in productive terms, since these are the prime age workers. If you think of a society as a 100 metres sprint athlete, then there is an age when this athlete is at the maximum of his or her running potential, an age after which each time they can only run the 100 metres more slowly.
Well a society is the same in terms of its collective economic potential, without addressing underlying issues either through fertility or immigration, it can only move forward more and more slowly. Consumption becomes flat, and GDP growth - gioven the external dependence - fragile.
Private consumption has hovered pretty close to the 60% mark for many years now, while government consumption - after moving sharply upwards as a total share in the first half of the 1970s has subsequently remained pretty constant, moving around the 19% of GDP mark. The big difference has been in the importance of fixed capital formation (GFCF) which reached from 1975 to 2000hovered around the 22 - 24% of GDP mark.
Prior to 1975 GFCF was at a much higher level, while post 2000 it has dropped substantially And So what we can see is that the year between, say, 1975 and 2000, when GFCF remaind a more or less constant share of GDP, constituted - to use the language of neo-classical economics - the constant growth period of the German domestic economy.The years prior to 1975 were the convergence, or "catch-up" years
And especially the 1960s, after Germany finally broke out of the destruction and devastation of WWII - while the years after 2000 constitute what the neo-classicists would call the "balanced growth period", although as we can see, it isn't very balanced, and there certainly isn't a steady state.
2008 Forecasts: There is a consenus at the present time that the German economy is slowing. Where there is no real consensus is over the rate at which it is slowing and where and when it will settle. It is clear that GDP growth in 2007 will be below the heady 3.1% annual rate achieved in 2006. The OECD last December revised their 2007 German forecast down to 2.6%, and their 2008 one down to 1.8%. The IMF in their October World Economic Outlook forecast growth for 2007 at 2.4%, slowing to 2% in 2008. Morgan Stanley's Elga Bartsch, while optimistic that the German economy will whether the credit crunch better than most (and here she may well be right) is somewhat more sanguine, putting 2008 growth at 1.5%. In general though I rather doubt her overview that "Germany could well be on the way to becoming the new growth locomotive in Europe." and especially her suggestion that "the phase of underperformance in terms of GDP growth, which has plagued Europe’s largest economy for years, is clearly over." Unfortunately, what we are arguing on this blog is that Germany's GDP growth rates since the mid 1990s are not some special kind of "underperformance", but what can be expected from a society with a rapidly rising median age which is increasingly dependent on exports rather than domestic consumption for growth.
The EU commission in it's November 2007 forecast was also convinced that the German economy was now on a "solid growth path", forecasting 2.5% growth for 2007 and 2.1% for 2008. I personally will be very surprised if we see growth in the region of 2% for the German economy in 2008, and I even consider the 1.8% from the OECD and 1.5% from Morgan Stanley still on the high side given the extent of downside risk. Basically the reasonably favourable depreciation rules which currently apply to German investment have been changed as of 1 January 2008, and we might reasonably expect to see some sort of impact on investment comparable with the negative shock which hit private domestic consumption following the VAT rise on 1 Jan 2007. In addition all the indications suggest that German consumption will continue to be weak in 2008. So if consumer consumption is at best flat, governemnt consumption equally so, and investment and construction weakening, we are simply lefy with export growth, and here the outlook is definitely more negative in 2008 than it was in 2007. The Spanish economy (one important German customer) is visibly wilting by the day, as is the UK (another big customer), but it is to Eastern Europe we must look for the biggest impact on German exports of any correction in 2008. Just one data point should suffice, Germany exports roughly the same value of goods to the Czech Republic (and more to Poland) as it does to China. This means that Geramny is proportionately not that exposed to any slowdown in China, but hugely exposed to any sudden shift in growth and demand in the East of Europe.
So I would say, that on current data, 1% growth in Germany in 2008 look a reasonable estimate at this point, but that this needs to be taken to mean with considerable downside risk. Germany is now tremendously dependent on what happens elsewhere, and until what does actually happen elsewhere becomes clearer it is difficult to be more precise on Germany. The only apparent bright spot on the horizon is employment, but I am dubious that in the context of Germany's ageing workforce this will work through as some are hoping, as I expain at some considerable length in this post here. My opinion is that Germany will enter recession at some point during 2008, and that we may well have 2 consecutive quarters of negative growth. The continuing high euro will maintain pressure on German exports, and high oil and food prices will maintain pressure on the inflation front, at least in the first half of 2008. The ECB will probably switch stance towards rate reductions at some point, but since, as Elga Bartsch among many others so eloquently argues German internal consumption and investment are not especially dependent on credit conditions, easing from the ECB may not have as much impact as one would hope for.
Key Posts For Understanding The Present Path of the German EconomyIs The German Economy Heading For Recession in 2008?
Employment and Unemployment in Germany January 2008
Germany Economy, What Price the VAT Effect Now!
The German Economy, Employment, Export Shares and Age Structure
Structural Aspects of German Export Dependence
Does NeoClassical Steady State Growth Really Exist?
Thursday, May 8, 2008
German Industrial Output March 2008
German Exports March 2008
Exports from Germany fell for the second consecutive month in March as the global slowdown and rise of the euro continued to weigh on orders. Sales abroad, adjusted for working days and seasonal changes, declined 0.5 percent from February, when they when they were down 0.2 percent, the Federal Statistics Office said today. The rate of increase in Gernam exports has now been slowing steadily since the last quarter of 2006.
The trade surplus narrowed to 16.7 billion euros ($26 billion) from 16.9 billion euros in February. The surplus in the current account, which gives perhaps the best measure of all exports including services, widened to 17.2 billion euros from 16.1 billion euros the previous month.
The German economy is expected by Germany's leading economic institutes to expand 1.8 percent this year and 1.4 percent in 2009, but these numbers are now looking very questionable, given the extent to which German GDP growth is dependent on exports. These forecasts are already a downward revision since they had previously forecast growth of 2.2 percent for this year. The global outlook is certainly not encouraging for the idea of a sudden "bounce back" in German exports and International Monetary Fund last month cut its 2008 global growth forecast and said the world economy faces a 25 percent chance of recession.
The euro has appreciated 14 percent appreciation against the dollar over the past year and reached a record $1.60 on April 22. At the same time, surging raw-material costs are eroding spending power. Crude oil prices have doubled in the past year and breached $120 a barrel for the first time this week.
German manufacturing growth also slowed last month, business confidence fell and factory orders dropped for a fourth month in March. Investors also became more pessimistic in April. Plant and machinery orders fell 5 percent in March from a year earlier, according to the VDMA machine makers association.
German industrial production declined 0.5 percent in March from February, when it rose a revised 0.2 percent, according to the Economy Ministry earlier today.
German exports to other European Union countries dropped 1.5 percent in March from a year earlier, they rose 3.5 percent to non EU countries (including, of course, Russia and Ukraine).
Germany exported goods to the value of EUR 84.0 billion and imported goods to the value of EUR 67.3 billion in March 2008. German exports of March 2008 were thus 0.2% and imports 3.3% above the respective March 2007 levels. Upon calendar and seasonal adjustment, exports and imports showed opposite month-on-month trends: Exports decreased by 0.5%, while imports increased by 0.8% on February 2008.
The foreign trade balance showed a surplus of EUR 16.7 billion in March 2008. In March 2007, the surplus amounted to EUR 18.7 billion. Upon calendar and seasonal adjustment, the foreign trade balance recorded a surplus of EUR 15.4 billion in March 2008.
According to provisional results of the Deutsche Bundesbank, the current account of the balance of payments showed a surplus of EUR 17.2 billion in March 2008, which included the balance of services (EUR –0.7 billion), factor income (net) (EUR +5.0 billion), current transfers (EUR –3.1 billion) and supplementary trade items (EUR –0.7 billion). In March 2007, the German current account showed a surplus of EUR 20.7 billion.
In March 2008, Germany dispatched commodities to the value of EUR 54.8 billion to the Member States of the European Union, while it received commodities to the value of EUR 44.1 billion from those countries. Compared with March 2007, dispatches to the EU countries thus decreased by 1.5%, while arrivals from those countries rose by 1.8%. Commodities to the value of EUR 36.3 billion (–2.7%) were dispatched to the euro area countries in March 2008, while the value of commodities received from those countries was EUR 30.4 billion (+0.2%). Commodities to the value of EUR 18.5 billion (+0.8%) were dispatched to EU countries not belonging to the euro area in March 2008, while the value of the commodities which arrived from those countries was EUR 13.7 billion (+5.5%).
Germany exported commodities to the value of EUR 29.2 billion to and imported commodities to the value of EUR 23.2 billion from countries outside the European Union (third countries) in March 2008. Compared with March 2007, exports to third countries were up by 3.5% and imports from those countries by 6.3%.
Tuesday, May 6, 2008
Germany Services PMI April 2008
Eurozone service sector growth held steady at a slightly slower pace in April as faster growth in Germany contrasted with weakness elsewhere; Spain in particular stood out and reported record job cuts.
The RBS/NTC Eurozone Services Business Activity Index rose from 51.6 in March to 52.0 in April, coming in slightly above the earlier flash estimate of 51.8. However, the rise still indicated only a very modest acceleration in growth, with the rate of increase remaining weak by historical standards of the survey (and only slightly above the average reading for Q1, which had been the weakest quarter since Q2 2003).
Germany
Germany's services sector expanded for the third month running in April and at its fastest pace in six months, buoyed by a marked upturn in new business growth, The NTC services PMI survey showed on Tuesday.
NTC Research's business activity gauge for German firms ranging from banks to catering rose to 54.9 from 51.8, holding above the 50 mark separating expansion and contraction for the third month running and hitting its highest level in six months.
Even so, firms were less upbeat about the corporate outlook. Business expectations remained in the 'expansion' zone, but stayed well below the long-run series average, registering 51.2.
"The business expectations index ... does suggest that firms are very cautious," said Chris Williamson, chief economist at NTC, which compiles the data.
Anecdotal evidence suggested that a weaker economic outlook for the next 12 months weighed on business sentiment, NTC said.
The German government expects economic growth to slow to around 1.7 percent in 2008 from 2.5 percent last year. Next year it has forecast expansion of some 1.2 percent.
Although economic indicators point to the German economy, Europe's largest, making a strong start to this year, it has not escaped the fallout from the global credit crisis.
While a new business index rose sharply to 55.6 in April from 52.1 in March, the financial intermediation sector was the only one of six broad areas of the services economy where new business did not grow in April, NTC said.
An index on input prices rose to 62.7 from 60.3 in March. That reading was the highest this year and only just below last December's seven-year high.
