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Friday, May 30, 2008

German Retail Sales April 2008

According to provisional results of the Federal Statistical Office turnover in the German retail trade in April was up by 1.5% in nominal terms and in down by 1.0% real terms over the corresponding month of the previous year. The number of days open for sale was 26 in April 2008 and 23 in April 2007. Basically Easter makes a bit of a mess of the April/March comparison, but there is no doubt that over the two months retail sales were down significantly over the same months in 2007.

When adjusted for calendar and seasonal variations, the April turnover was in nominal terms 1.3% and in real terms 1.7% smaller than that achieved in March. Compared with the corresponding period of the previous year, retail turnover was in the first four months 2008 in nominal terms 1.6% larger and in real terms 0.9% smaller than that in the first four months of 2007.

What is clear is that retail sales are falling in Germany, and that they have been since 2006. The index of 2006 was 103.8, that for 2007 was 101.5 (a decline year on year of 2.2%), while in April 2008 the index stood at 98.7.

What it might well be worth considering given the declining working age population issue which is soon to lock in in Germany is whether we may not have reached a high point of the retail sales index in 2006 which will simply not be achieved again, in constant price terms. After all, the export driven boom of the last couple of years is certainly not going to be easily repeatable in the near future, and yet during much of this retail sales have continued to fall in real terms.

Having said this, we should never imagine life is entirely a one way street, and we do have quite an interesting and hard to interpret Retail Sales Purchasing Managers Index reading for May (this is a kind of early warning reading).

Having fallen sharply in April, German sales bounced back in May, showing the largest monthly gain since November 2006. The index jumped from 44.6 to 56.6. The turnaround was commonly attributed by panelists to improved sales of seasonal clothing and household goods resulting from improved weather. Looking back at the index, and the data in recent months (not to say years) it is hard to see the May reading as anything more than temporary "bounce" following several months of quite weak readings.

Thursday, May 29, 2008

German Unemployment May 2008

German unemployment unexpectedly rose in May for the first time in more than two years as record oil prices and the euro's appreciation weighed on exports. The figures however do need to be treated with caution, since computer glitches at the labour office, the reclassification of some categories of unemployed and the simple fact that Easter was in March and not April have all, to some extent, been playing around with the data.

The number of people out of work, adjusted for seasonal swings, rose 4,000 from April to 3.31 million (although the unadjusted number was still down a bit - see chart below) according to the Nuremberg-based Federal Labor Agency today. Up to May unemployment had fallen every month since January 2006.

With oil close to a record and the euro's 16 percent increase against the dollar in the past year making exports of goods like cars less competitive, companies may well be becoming more reluctant to hire workers. The European Central Bank has indicated its unwillingness to lower interest rates while inflation and money supply continue to surge strongly in the 15 country eurozone.

Exports unexpectedly fell for a second month in March as a global slowdown and the rising euro weighed on orders, according to the Federal Statistics Office in their monthly report.

In Europe, Germany's main export market, service and manufacturing industries expanded at the slowest pace in five years in May, according to the PMI flash estimates.

Data from NTC Economics gave a preliminary estimate for the Eurozone services PMI which slumped to 50.6 in May from 52.0 in April, way below forecasts for a much more moderate fall to 51.8. The level equals January's four and a half year low and takes the index closer to the 50 level below which the index would be indicating a contraction in activity. The equivalent index for manufacturing dropped to 50.5 from 50.7, slightly above forecasts, which were expecting a slightly weaker reading of 50.4, but still marking the lowest reading since August 2005.

The flash Purchasing Managers Index for Germany's service sector fell to 53.7 in May from 54.9 in April, while in the manufacturing sector activity dipped to 53.5 from 53.6 a month earlier. So basically we have the impression that things are slowing all round.

However, Frank Weise, head of the Federal Labour Agency which released the employment figures, warned that this months drop in the rate of employment creation “should not be interpreted as the first sign of a slowdown in the labour market.”

The agency said statistical effects and changes in the law also played their part. The seasonally-corrected figures, it said, were being distorted by unseasonably warm weather during the winter while changes in the legal status of jobseekers over 58 alone accounted for a 10,000 increase in the number of unemployed.

The mild weather, in particular, meant fewer jobs had been lost during the winter than in previous years, resulting in a lower reduction in unemployment during the spring season, the agency said. The statistical agency also pointed to employment figures – whose publication lags one month behind the jobless data – showing an 54,000 increase in job creations in April.

As reported by the Federal Statistical Office on the basis of first calculations for April 2008, the number of persons in employment whose place of residence was in Germany was 40.08 million. That was an increase by 650,000 persons (+1.6%) on April 2007. Compared with March 2008, the number of persons in employment rose by 153,000 (+0.4%) in April 2008.

So the positive trend in overall employment creation which has existed in Germany over the last two years certainly continued into April. It is true however that in April the increase in employment was somewhat smaller against the previous year than in earlier months (both in March and February 2008 the rate of increase had been + 1.8% compared with the same month one year earlier). One explanation being offered for this is that particularly favourable employment figures had been recorded for the earlier months (and this is, incidentally, also reflected in the particularly favourable GDP numbers). The mild winter on the one hand and an increased utilisation of the seasonal short-time working allowance on the other will have contributed to this result. The allowance is available only during the period 1 December to 31 March.

In April 2008, the number of persons in employment in Germany was 40.25 million after seasonal adjustment, that is after elimination of the typical seasonal variations. That was a seasonally adjusted increase by 27,000 (+0.1%) on March 2008.

Based on the labour force survey the Federal statistics Office reported a seasonally adjusted 3.19 million unemployed for April 2008. That figure, which is a provisional estimate, was calculated according to the concept of the International Labour Organization (ILO). Compared with the same month a year earlier (April 2007), the number of unemployed was down by 480,000 persons or 13.1%. The seasonally adjusted unemployment rate – which is harmonised across the EU and measured as the share of unemployed in the total labour force – amounted to 7.4% in Germany and was thus considerably below the level of the corresponding month of the previous year (8.5%).

The raw, unadjusted figures showed a 131,000-strong drop in unemployment in May – smaller than the fall observed in May last year - down to a total of 3.28m jobseekers. Internationally comparable figures using International Labour Organisation methodology put the number of jobseekers at 3.39m in April and the unemployment rate at 7.8 per cent.

Tuesday, May 27, 2008

German GDP Q1 2008 Detailed Results

As already reported here following the first release of data from the Federal Statistics Office on 15 May 2008, the German economy started 2008 with what seemed on the surface to be considerable momentum since on a price, seasonal and calendar adjustmented basis gross domestic product (GDP) was up by 1.5% higher in the first quarter of 2008 over the level achieved in the last three months of 2007.

Economic growth in the first quarter of 2008 was supported primarily by gross fixed capital formation, which continued to increase at a fair clip. Compared with the fourth quarter of 2007, investment in machinery and equipment was up by 4%, and capital formation in construction rose by even 4.5% owing to the comparatively mild winter. Overall final consumption expenditure, increased by 0.5%, the first such rise in over a year, however breaking this down we find that government final consumption expenditure was up markedly (+1.3%), while the final consumption expenditure of households showed a smaller increase (+0.3%) against. Inventory building, on the other hand, added a substantial 0.7% points to growth in the first quarter. Exports continued to grow (+2.4%) but in fact since imports rose even more strongly (+3.5%), foreign trade actually had a downward effect on gross domestic product in Q1 2008 when compared with the preceding quarter (see chart below).

So the bottom line is that the of the 1.5% increase in q-o-q GDP, nearly half (0.7% points) was accounted for by a growth in inventories, while 0.4% was accounted for by a growth in construction which was in part the result of better weather in January and February and scheduled work being advanced (although you can't simply add these numbers since some of the construction work may well have accumulated in inventories), while the net impact of external trade slowed, and household consumption only accounted for 0.2% points.

So basically it would be far from in order to announce this result as strong evidence for anything about the Germany economy at this point, other than that the economy resisted a strong slowdown in Q1. The data from Q2 should make all of this much clearer, I think, we will see what gets to happen to the inventories, and we will see what happens to construction.

Year on year a slight increase (+0.1%) was recorded for the final consumption expenditure of households following a decline in the four preceding quarters (see chart below). According to the statistics office this slight improvement is primarily due to a recovery in private car purchases (follwoing the VAT impact in Q1 2007), since expenditure on transport and communications, which includes also private car purchases, rose by an annual price-adjusted 2.2%.

In the first quarter of 2008, GDP was a price-adjusted 1.8% higher than in the same quarter one year earlier. The growth rate was a calendar-adjusted 2.6% as there had been two working days less in the reference quarter than in the first three months of 2007.

Q1 2008 gross domestic product was achieved by about 39.8 million persons in employment - 686 000 persons or 1.8% more than one year earlier. The number of unemployed (ILO definition) amounted to just under 3.5 million, having a share in the entire economically active population of 8.0%.

Overall labour productivity (price-adjusted gross domestic product per person in employment) rose only very slightly by 0.1% (another bad sign), although as measured per hour worked, there was an increase by 0.8% since the number of hours worked by those in employment rose much less than the number of persons in employment. This is a reflection of how Germany has been creating a lot of part time and temporary work in recent quarters.

GFK Consumer Climate Survey May 2008

German consumer confidence fell more than economists forecast in May, as inflation sapped purchasing power. GfK AG's foward looking index for June, based on a survey of about 2,000 people, declined to 4.9 from a revised 5.6 in May.

Rising inflation in May of this year has clouded the mood among consumers. The economic outlook indicator, income expectations and the propensity to buy all suffered considerable losses. As a result, the consumer climate indicator for June is forecasting a value of 4.9 points after a revised 5.6 points in May.

GFK emphasised that with oil and petrol prices constantly hitting new record highs and further looming price increases in areas like food, German consumers are becoming increasingly preoccupied by the constraints on their purchasing power. This has led to income expectations being assessed less positively than in April. Price increase expectations also meant that the propensity to buy fell sharply in May. Concerns about price stability and uncertainty resulting from the crisis on the financial markets and the flagging US economy are currently fueling economic fear amongst German consumers. This has resulted in the economic downturn becoming somewhat more pronounced than at the beginning of the year.

Turning to the sub-components, these are all sharply down this month.

Economic expectations

The significant gains in economic expectations last month could not be maintained in May. The indicator dropped back by almost 10 points to stand at 13.4 points.

GFK suggest that despite the fact the German economy did surprisingly well in the first quarter of the year, German consumers are looking towrads further economic development much more cautiously. It is becoming increasingly apparent that the crisis on the financial market is far from over and the current developments of the US economy while not being disastrous are also far from encouraging in the short term. Evidently, Germans are assuming that the strong GDP growth recorded in the first quarter of 2008 is not likely to continue and as a result, an economic slowdown is being anticipated. The continuing strength of the euro and the high rates of inflation are only intensifying this feeling.

In this light, economically positive developments, such as the good conditions on the job market, are currently taking more of a back seat.

Income expectations

After three months of successive growth, income expectations incurred marked losses in May. The indicator fell by 14.8 points to stand at -4.3 points. As a consequence, the gains made over the previous three months were almost completely negated.

In addition to a general concern about household purchasing power, the particularly high energy prices seem to be a major factor behind the current pessimism concerning future personal finances. Beyond this, discussions of price increases are currently drowning out the positive effects of the wage agreements concluded at the beginning of the year. Positive developments in the job market and the knock-on positive effects for income development are presently being eclipsed by strong inflation expectations.

Propensity to buy

In the wake of falling income and economic expectations, the propensity to buy also suffered major losses in May. The indicator dropped back 15.7 points, to now stand at -20.4 points.

The drop in buying propensity is mainly attributable to the increased fears of inflation. In light of soaring energy and food prices and the fear of further price hikes, any funds allotted to cover these increases can obviously not be used for other purchases.

Wednesday, May 21, 2008

IFO Business Climate Index May 2008

German business confidence bounced back slightly in May according to the Munich-based Ifo institute business climate index. The index which is based on a survey of 7,000 executives, rose to 103.5 from 102.4 in April.

The IFO result is not that interesting, since the composite index has actually moved very little, and is still well below earlier highs. What is slightly interesting is that the improvement is due to current conditions, which firmed slightly (ie May is not a VERY bad month, see the chart below), but the expectations index continues to move down. This seems to suggest that the current business situation has been regularly exceeding previous expectations in recent months (growth in demand for exports in Russia and Eastern Europe perhaps), but that this situation will not last forever. At some point the "unusual circumstances" will not continue and the cold light of normality will set in.

Tuesday, May 20, 2008

German ZEW Economic Sentiment Index May 2008

The ZEW Indicator of Economic Sentiment for Germany remained - more or less - stable in May 2008. The composite indicator decreased slightly - by 0.7 points - and now stands at minus 41.4 points after registering minus 40.7 points in April. This, however is still well below its historical average of 29.6 points.

Movement in the ZEW Indicator of Economic Sentiment seems to have been mainly influenced by the following two factors. On the one hand, economic expectations for the next six months for the United States and consequently also for the German export industry have increased considerably. On the other hand, inflationary risks remain high. This latter element is expected to negatively affect private consumption in Germany.

"German firms were very successful in the first quarter of 2008. However, the economic momentum should gradually loose speed because of increasing refinancing costs and a strong euro. This should have a negative impact on firms.", said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

The assessment of the current economic situation in Germany improved in May. The corresponding indicator increased by 5.4 points to 38.6 points. A separate analysis up to May 14, 2008 shows that the assessment of the current economic situation in Germany improved after the publication of the German GDP-growth for the first quarter of 2008. The ZEW Indicator of Economic Sentiment, in contrast, worsened.

Economic expectations for the euro zone stabilized in May. The indicator slightly increased by 1.2 points and now stands at minus 43.6 points. The indicator for the current economic situation in the euro zone dropped by 4.1 points and now stands at 11.4 points.

German Producer Prices April 2008

German producer-price inflation, widely considered to be an early indicator of price inflationpressures in the economy, accelerated to the fastest pace in almost two years in April, largely on rising energy costs. Prices for manufactured goods increased 5.2 percent from a year earlier, the most since August 2006, the Federal Statistics Office in Wiesbaden said today.

Adding to cost pressures, German wholesale-price inflation slowed less than economists expected in April to 6.9 percent from 7.1 percent in the previous month. Crude oil prices have gained 33 percent this year, reaching a record $127.82 a barrel on May 16. Energy prices rose 12.6 percent from a year earlier and oil products were 17.8 percent more expensive, the statistics office said. Excluding energy, producer prices rose 2.7 percent.

The European Central Bank on May 8 kept its key interest rate at 4 percent, signaling concern that companies are raising prices and wages. Inflation has been pushed higher by record energy and food prices, constraining consumers' spending power, and todays release shows a continuing price pressure which the ECB will findit very hard to ignore. In addition it is already clear that May will show significant upward pressure on prices simply due to energy prices, so with today's figures, the bad news certainly isn't over yet.

Thursday, May 15, 2008

German GDP Q1 2008

German economic growth accelerated to the fastest pace in 12 years in the first quarter as companies stepped up spending on machinery and construction. Gross domestic product rose 1.5 percent from the fourth quarter, when it increased 0.3 percent, the Federal Statistics Office in Wiesbaden said today. That's the highest quarterly growth rate since the second quarter of 1996.

Economic growth was based on both domestic uses and foreign trade. In particular gross capital formation experienced a rise on the fourth quarter of 2007 and on a year earlier. The same was true, albeit to a lesser extent, of final consumption expenditure. Net exports also contributed to growth, though only in a year-on-year comparison.
Federal Statistics Office

Year on year the price-adjusted GDP was up 1.8% in the first quarter of 2008 compared with the same quarter a year earlier. When calendar-adjusted, the growth rate was even 2.6% because in the reference quarter there where two working days less compared to the first quarter of 2007.

Good weather kept building sites open in the three months through March, aiding a construction industry already recovering from a decade-long slump after booming exports fueled company investment last year. This year's winter was ``exceptionally mild'' and sunny, with temperatures 2.7 degrees Celsius above the long-term average making it the sixth warmest since 1901, according to the German weather service.

``The surprisingly strong performance was almost entirely driven by the absence of a winter and masks a much weaker trend,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. ``From now on, German growth will stagnate.''

The statistics office said investment was the main driver of first-quarter expansion and consumer spending made a small contribution. While exports aided annual growth, they didn't contribute to expansion in the quarter. In the first quarter of 2008 there were 39.8 million persons in employment, an increase of 686,000 persons or 1.8%on a year earlier.

German exports and manufacturing orders both fell in March and business confidence declined for the first time in four months in April.

Wednesday, May 14, 2008

Germany - Keeping People at Home?

by Claus Vistesen

Following up on a point I mentioned about international migration in my previous post on global demographics (where I reviewed a recent paper by David S. Reher) I would like to briefly examine some of the issues raised in a German context. In my post I latched on to a point made by Mr. Reher about how some low fertility countries might see adverse effects from exporting surplus labour to other countries. The argument was specifically centered on East european transition economies but, as you will see in what follows, the argument can also be expanded. The main issue becomes one of rearranging those proverbial deck chairs on the Titanic (i.e. to get the best spot relative to watching the inevitable demise of the ship) as many countries across the globe seek to mitigate a labour dearth by importing foreign labour. The allure of such policies should not be neglected. Relative to actually doing something about the underlying issue (i.e. nudging fertility back up) receiving foreign labour becomes an immediate, if only temporary, fix for labour shortages and even in some cases the source of unprecedented economic booms (Spain would be an excellent example here). In this present context it might serve us well to take a trip to Germany and do so by looking at an eloquent piece in the IHT (aggregated from Reuters) by Erik Kirshbaum. As Kirshbaum neatly points out we all know that Germany is hard at work trying to ramp up its industry and export its pension and health systems out of economic trouble but is also, as it were, exporting itself into even deeper trouble in another department - the human capital one. Basically, it is one thing shipping off semi-conductors and cars, but it is quite another to ship out human capital, since the latter is becoming an increasingly scarce resource in Germany.

Still plagued by high unemployment owing to the turmoil of reunification in 1990 and rigid labor laws, Germany has been helping its skilled and less-skilled jobless workers match up with foreign employers searching for manpower. The country has also been offering financial support to cover moving and transportation costs for unemployed Germans searching for jobs across the European Union, and even as far away as Australia and Canada. In one typical example, a newspaper in Fuerteventura, one of the Canary Islands of Spain, was recently filled with advertisements placed by Germans hunting for jobs.

"German seeks job in hotels or tourism," read one. "All relocation and travel costs paid for by German Labor Office."

Germany had an unemployment rate of 8 percent in February, about one percentage point higher than the euro zone average: 3.6 million people in the country are without jobs and more than 155,000 Germans emigrate each year. Many thousands have been helped by the Labor Office's International Placement Service in Bonn, which offers to some "Mobilitãtshilfe" (mobility assistance) or a "Mobilitãtsprãmie" (mobility bonus). The financing, known as the "Mobi," helps cover moving and travel costs for jobless Germans and their families. It is discretionary and aimed at those with job prospects abroad, although it is also available for relocations inside Germany.

"The mobility assistance benefits can be used for moves to anywhere in the world," said Sabine Seidler, spokeswoman for the International Placement Service in Bonn. "They're granted on a case-by-case basis and there's no upper limit on the sum involved. Applicants usually must have a contract and meet certain criteria. The main purpose is to help those who've lost their jobs find work as quickly as possible."

Now here on Demography Matters we have previously tried to draw attention to the worrying rend in net German migration. Back in May 2007 we cited the last available report from the Federal Statistics Office which showed that

"......on the basis of provisional results, 662,000 persons in-migrated to Germany in 2006 and 639,000 persons out-migrated. This results in net inward migration of 23,000 persons. That was 46,000 in-migrations less and 11,000 out-migrations more than in 2005. Consequently, net inward migration decreased strongly from the previous year (–71%), following a decrease by just 4% from 2004 to 2005. So there is a net inward balance of migrants in 2006 of 23,000. "

In view of the significant ageing process which is taking place in Germany this steady decline in the net balance is indeed preoccupying. Germany is currently a long long way from making up for all those "missing births" with inward migration. We have previously commented on this situation on DM a number of times (and here). We also cited an article from the Financial Times which gave some indication of the impact the absence of substantial inward migration was having on some sectors of the German economy:

Germany’s decision to restrict the working rights of east Europeans is hitting consumers where it hurts – their asparagus steamers. After this year’s warm, wet spring, the sandy plains of central Germany should have yielded an asparagus vintage for the history books. Instead, entire fields of the delicacy are rotting unplucked. Farmers, politicians and economists are scrambling for an explanation. At the Federal Statistical Office, which charts the amount produced in the country, experts are warning about a paradoxical year, with a harvest below the record 82,000 tons registered in 2005 despite better growing conditions.

Everyone agrees on the reason; there is a shortage of pickers. The 300,000 foreign seasonal hands, mainly Poles, who normally work the three-month “Spargelsaison” seem to have better things to do this year...... Herbert Buscher, economist at the IWH research institute in Halle, agrees that Germany, whose booming economy is now suffering from drastic shortages of workers in certain sectors, has “shot itself in the foot with its restriction to the free movement of workers”.
However what we now need to note is not only that Germany has unwisely beeen placing restrictions on the free movement of fellow EU workers into its labour market, it has also been operating a policy of helping people to find work abroad and, perhaps much more worryingly, it still seems to be encouraging this process. Re-locations inside Germany are of course one thing but actually helping people to leave Germany seems to be extraordinarily ill-advised at this point. Obviously, we can all see how it helps "beef-down" the unemployment statistics but as a long term policy it is anything but sound. Some however, are now beginning to sound the alarm ...

In Germany, the assistance is controversial. Economists and industry leaders say paying people to leave a country with a shrinking population and one of the lowest birth rates in the world is a recipe for disaster. Shortages of skilled labor are now acute in industries like engineering and car production, but they also loom in sectors like retailing, health care and finance. Meanwhile, "depopulation" has become an explosive issue in some areas, especially in the formerly Communist east.

"It's obviously better if they find work in Germany and pay tax, as well as contribute to the state's social welfare system," said Werner Eichhorst, deputy director of labor policy at the Institute for the Study of Labor in Bonn.

"In the short term, emigration takes people off jobless rolls, but in the long term we're losing workers with skills," he said. "It's usually the best and most flexible who leave. They're also often at ages where they have children. They're lost to Germany and obviously their children won't contribute later either."

The article also quotes Deutsche Bank's chief economist Norbert Walter for saying that even though he formally supports the mobility aid Germany should try kick it into reverse. Specifically Walter mentions how Germany will need to attract a significant amount of immigration in the coming years to compensate for the decline in the labour force. Right on cue Mr. Walter. Unfortunately, with Germany's size and the region's demographic trends (e.g. in Eastern Europe) this is going to be anything but the trifle Mr. Walter seems to think. Essentially, I don't think I can express myself much clearer than this. Germany desperately needs to instigate a sound policy on migration. The current one which in some ways encourages skilled labour to leave is way past its time and peak.


We are incorporating the following three additional charts to accompany the discussion in comments.

(please click on images for better viewing)

Further the newspaper Frankfurter Allgemeine Zeitung reported on Friday 25th April that the German government has decided not to open its doors to East European workers till the second half of 2011 - the very last date possible under the EU Accession Treaty for the new members. This would seem to indicate that far from addressing its demographic problem Germany is at present moving backwards on it.

The executive committee of the conservative Christian Democrats (CDU) approved pushing the deadline on opening Germany's borders back two years, from 2009, committee member Karl-Josef Laumann told the Frankfurter Allgemeine.

"The extension has been decided," Laumann said.

In 2005 Germany persuaded Brussels to allow it to impose restrictions until 2009 because of fears that a flood of cheap labour would put Germans out of work.

The newspaper reported that both the CDU and their junior partner in the German parliament's ruling coalition, the center-left Social Democrats (SPD), were in favour of the extension. German Labour Minister Olaf Scholz, of the SPD, expressed support two months ago, while German Chancellor Angela Merkel has said she could not imagine opening the borders prior to 2011.

The Financial Times also had an article recently reporting on a study by the consultants McKinsey who warn that more than 10m Germans could fall into poverty by 2020 because of insufficient economic growth. Assuming annual gross domestic product growth of 1.7 per cent, those earning between 70 per cent and 150 per cent of the average income – the standard definition of the middle class – will constitute less than half the German population by 2020, compared with 54 per cent today, according to McKinsey. Of course this is assuming sustained economic growth at an average of 1.7% per annum on average, which may be a questionable assumption. Anything less than this number and the problem, of course, will be greater. Gross domestic product in Germany rose by only around 1.4 per cent in the decade to 2006, 2007 was a very exceptional year since global trade grew at record rates thus giving a huge boost to german exports, and it now remains to be seen what sort of annual growth Germany can produce during an economic downturn.

“In recent years, the German growth model has relied almost exclusively on productivity gains,” the authors of the McKinsey report write. “Given the new challenges, this concept is now reaching its limits.” McKinsey also warns the government against short-term measures aimed at boosting income and consumption. Only structural steps, the study says, can raise annual GDP growth to 3 per cent – the level it says is required for standards of living to stabilise. The consultancy blames Germany’s poor long-term economic prospects on slowing productivity gains, falling working times, a shrinking working population and a failing education system.

German Inflation April 2008

As reported by the Federal Statistical Office (Destatis), the consumer price index for Germany rose 2.4% in April 2008 on April 2007. Compared with March 2008, the index was down 0.2%. In March 2008, the year-on-year rate amounted to +3.1%. The estimate for April 2008 based on the results from six Länder was thus confirmed.

The harmonised consumer price index (HICP) for Germany, which is calculated for European purposes, rose 2.6% in April 2008 on April 2007. Compared with the previous month, the index was down 0.3%. The HICP estimate of 28 April 2008 was thus confirmed.

The relatively low year-on-year rate of price increase in April 2008 is due to two special influences: Compared with a year earlier, prices decreased especially for package holidays (−7.4%) and accommodation services (−0.4%). This is mainly attributable to the early Easter holidays in March 2008; in 2007, Eastern was in April (calendar effect). In education, the introduction of tuition fees in some Länder a year ago (April 2007) for the first time did no longer have any influence on the rate of price increase (basis-related effect). Each of those two effects leads to a reduction of the year-on-year rate of price increase by 0.2 percentage points.

The year-on-year rate of price increase is characterised mainly by higher prices of mineral oil products. Despite the strong euro, the world market prices of crude oil are further rising. Not considering the price trend for mineral oil products, the rate of price increase would have been just 1.7%. Motor fuel prices were up 8.8% on a year earlier (including supergrade petrol: +5.8% and Diesel fuel: +17.2%). Liquid fuel prices climbed 38.9% and hence saw the highest increase on the previous year. The prices of the other household energy sources, too, rose considerably on a year earlier (including electricity: +7.3%; gas: +3.6%; charges for central and remote heating: +3.4%).

Prices of food and non-alcoholic beverages increased an average 7.1% in April 2008 compared with April 2007 (of which food: +7.3% and non-alcoholic beverages: +6.0%). As in the previous months, unusual price rises were observed for milk, cheese and eggs (+24.0%; including curd: +47.2% and full-cream milk: +31.0%) as well as for oils and fats (+16.7%). Consumers had to spend more than a year earlier also for fruit (+9.7%) and for bread and cereals (+8.8%; including pasta: +26.6%). Prices were down, however, for vegetables (–5.2%; including potatoes: −11.2%; tomatoes: −19.4% and salad: −23.8%).

The 0.2% price decrease on March 2008 is due to opposite price trends. In April 2008, seasonal month-on-month price decreases were observed especially for travels (including package holidays: −13.4%; accommodation services: −6.0% and air travels: −4.3%). However, especially prices of liquid fuel rose markedly (+4.1%). Food prices were up a total 0.4% on the previous month, including especially vegetables (+1.1%). Seasonal price rises were observed, among other things, for potatoes (+4.2%) and peppers (+7.8%), whereas prices were markedly down for cucumbers (−20.9%). There were opposite price trends also for other food: Prices were again down in April 2008, for example, for butter (−2.9%), while margarine prices were up (+6.0%). The prices of milk products (+0.3%) and of bread and cereals (+0.4%) rose only slightly on the previous month.

Thursday, May 8, 2008

German Industrial Output March 2008

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.

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'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.

Monday, May 5, 2008

EU Economic Sentiment Index April 2008

The European Commission’s eurozone “economic sentiment” index which fell sharply from 99.6 in March to 97.1 in April – the lowest level since August 2005. With the indicator regarded as good guide to growth trends, the unexpectedly steep decline pointed to a marked deceleration in economic activity.

Still, eurozone countries show varying performances. Economic sentiment in Spain, which is at risk of a serious house price correction, has fallen to the lowest level since late 1993. But sentiment in Germany and France remains relatively robust – falling to the lowest levels since February 2006 and December 2005 respectively.

As can be seen from the above chart, Italy continues - like Venice - its steady downward drift, while the two eurozone economies which had the strongest housing booms head steadilyoff the cliff, with Spain having poll position, and by quite a long margin

German Manufacturing PMI April 2008

European manufacturing growth slowed for a third month in April as cooling global demand and a stronger euro took their toll on export orders. Royal Bank of Scotland Group Plc's manufacturing index fell to 50.7 from 52 in March, according to NTC Economics Ltd., which carries out the survey of purchasing managers. That's less than an initial April 23 estimate of 50.8 and the lowest since August 2005. A reading above 50 indicates growth.

The final RBS/NTC Eurozone Manufacturing PMI came in at 50.7 in April, down from 52.0 in March and slightly below the earlier flash estimate of 50.8. The fall in the PMI was the largest for six months and took the index to its lowest since August 2005.

National trends among the big-four euro nations varied markedly again in April, as did production by sector, with consumer goods producers reporting a survey record decline in output.

The PMI (Purchasing Managers' Index) was particularly weak, registering the first decline in new orders since May 2005 (in line with the flash reading). New export orders fell by marginally more than indicated by the flash reading, also declining for the first time since May 2005 due to softer economic growth in key foreign markets and the strong euro.

Among the big-four euro countries, only Germany recorded an increase in new orders, though the rise was the smallest for three months. This deterioration was primarily the result of a substantial easing in growth of new export orders at German manufacturers. Spain and Italy both saw new orders fall at the steepest rates since December 2001.

In a sign of broad-based weakness of production to come in future months, new orders for consumer, intermediate and investment goods (such as plant and machinery) all fell in April, albeit only marginally in the case of investment goods. Consumer goods producers saw the sharpest monthly drop in new orders in the survey’s ten-year history, in part reflecting lower levels of new export orders.

``Germany will do better than average,'' said Dominic Bryant, an economist at BNP Paribas in London, in a research note to investors. ``At the other end of the spectrum, Italy and, in particular Spain, will have a very tough year with growth well below trend.''

German PMI

German manufacturing activity weakened to its slowest pace in four months in April, but held above its long-term average thanks to robust expansion in output. A dip in new orders growth, however, suggested pressure on output may increase in coming months and the pace of job creation slowed to the weakest since October.

The NTC/BME Purchasing Managers' Index (PMI), based on a survey of 400 firms, slipped to 53.6, adjusted for seasonal swings, from March's seven-month high of 55.1, NTC said.

"The manufacturing sector remained on a healthy footing at the start of the second quarter, with production rising at a robust and above-trend rate," said NTC economist Tim Moore. "However, output growth was again slower than the peak of the current growth cycle and will likely come under pressure in the months ahead following the relatively subdued improvements in new order volumes recorded on average in 2008."

A measure of output rose to 55.3 in April from 54.7, NTC said. By contrast, a gauge of employment fell to 54.2 from 56.5 and a measure of new orders dropped to 52.5 from 54.9.

An NTC gauge of new export orders signalled the second-weakest increase for around three years, falling to 51.8 from 54.0.

"There were reports that the strong euro and deteriorating economic conditions in the United States had both weighed on export demand," the group said. NTC chief economist Chris Williamson said the impact of the strong euro was most discernible in the consumer goods sector in April's survey. "Whether that's down to the euro or just general easing of consumer sentiment in key trading partners like Britain and the United States remains to be seen," Williamson said. "There are problems in competitiveness creeping in because of that strong euro on a broadbased scale," he added. On prices, Moore said a surge in steel and energy costs had underpinned a sharp increase in average cost burdens last month, with the rate of inflation only just below March's eight-month high. "April data suggest that the spike in pipeline inflationary pressure has begun to make its way to the factory gate, as output prices rose at the third-strongest pace in the series history," Moore added

Friday, May 2, 2008

German Retail Sales March 2008

Retail sales in Germany, Europe's largest economy, unexpectedly declined in March for a second month as accelerating inflation left consumers with less money. Sales, adjusted for inflation and seasonal swings, fell 0.1 percent from February, when they dropped 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Year on year, sales fell 6.3 percent. It is important to remember at this point that the Easter week was in March this year. It will be important now to look at April sales.

According to provisional results of the Federal Statistical Office (Destatis), turnover in retail trade in Germany in March 2008 was in nominal terms 3.7% and in real terms 6.3% smaller than that of the corresponding month of the previous year. The number of days open for sale was 24 in March 2008 and 27 in March 2007.

When adjusted for calendar and seasonal variations (CENSUS-X-12-ARIMA), the March turnover was in nominal terms equal to that (0.0%) and in real terms 0.1% smaller than that of the preceding month.

Compared with the corresponding period of the previous year, retail turnover was in the first three months 2008 in nominal terms 1.3% larger and in real terms 1.2% smaller than that in the first three months of 2007.

Rising food and energy prices pushed German inflation to 3.3 percent in March, matching a 12-year high reached in November. German consumer prices, based on a harmonized European Union method, rose 2.6 percent in April from a year earlier. In Europe, inflation slowed more than economists forecast in April - to 3.3 percent (from 3.6 percent in March) the previous month, according to a flash estimate from Eurostat on April 30.

German GFK Consumer Confidence Index May 2008

Well this really is quite a surprising result, largely becuase it seems to run so contrary to everything else we are seeing at the moment. German consumer confidence unexpectedly increased to a seven-month high as rising incomes encouraged spending.

GfK AG's index for May, based on a survey of about 2,000 people, increased to 5.9 from 4.8 in April, the Nuremberg-based market-research company said in a statement today. Economists predicted the gauge would fall to 4.5, according to the median of 28 estimates in a Bloomberg News survey.

The mood among German consumers markedly improved in April. The economic outlook indicator, income expectations and the propensity to buy all climbed significantly. As a result, the consumer climate indicator for May is forecasting a value of 5.9 points after a revised 4.8 points in April.
GFK Report

Rising wages and the lowest unemployment in 16 years are cushioning the impact on consumers of faster inflation and slowing economic growth. While industrial production unexpectedly rose in February and manufacturing growth accelerated last month, business confidence fell more than economists forecast this month under the impact of the global credit squeeze on export markets.

The euro pared gains after the report, having risen as high as $1.5682 from $1.5630 on April 26.

The sub-index measuring income expectations jumped to 10.5 from 1.5 and the gauge of consumers' propensity to spend rose to minus 4.7 from minus 10.2. The measure of economic expectations increased to 23.3 from 15.

Economic expectations: marked growth

After the minimal growth recorded last month, the economic expectations of German consumers are now increasing dramatically, with the indicator rising 8.3 points to stand at 23.3 points.

Consequently, a further fall in the economic mood is not on the cards, at least for the time being. Consumers assume that the German economy is not in recession, but is likely to show signs of slowing down. They believe that the impact of the US subprime crisis and its associated repercussions will not leave German banks totally unscathed. Up to now, however, the banks seem to be very resilient and able to counter these dangers. The many positive reports on the job market testify to the generally good state in which the German economy finds itself.

Income expectations: remaining optimistic

Income expectations in April rose again for the third consecutive time. Up by 9 points, the current increase was even greater than the two previous months together. However, compared with the same period last year, the figure was down by a good 19 points.

Above all, the good wage agreements in the public sector are rightly giving public sector employees the hope that, unlike in previous years, they will finally be given greater purchasing power once again. Evidently, these expectations have been able to allay any fears of inflation, provoked by rising food and energy prices. On top of this, the positive trend on the job market continued to reduce fears of unemployment, which in turn, also sustained income expectations.

Propensity to buy: still on course for recovery

Buying propensity also continued to recover unabated in April. The indicator rose markedly for the second time consecutively, up by 5.5 points this month. This represents propensity to buy of -4.7 points, which is still below its long-term average of 0 points.

The more optimistic income expectations, in particular, seem to have encouraged growth in the propensity to buy. However, the fact that it remains at a level which is below average also reflects the remaining element of uncertainty and shows that Germans will think twice before abandoning consumer reticence.