GERMANY: Private Consumption Sustains Stagnating Growth

The GDP receded by 0.2% in 3Q q/q and stagnated in the 4Q, its growth for 2018 reaching 1.4%. The expected high growth in domestic demand could cause higher imports compared to a more moderate increase of exports affected by the slowing global economy. A deficit of trade balance could hinder the GDP-growth in 2019 (-0.4 of a percentage point). Industrial production is suffering from a prolonged decline in orders, especially outside the Eurozone. The decrease of incoming orders speeded up in February and the production index clearly decreased between late 2018 and early 2019.

In February 2019, the value of the manufacturing PMI has decreased to 47.6 for the first time in the last six years. The industrial capacity utilisation rate is decreasing (February ’19: 86,3). The Ifo business climate index and the composite PMI deteriorated during the 2nd half of 2018. Surveys foresee an overall short-term slowdown of activity across all sectors (manufacturing, services, construction, retail and wholesale sales) and greater caution in firms’ hiring intentions. The solid overall growth in wages and the low unemployment rate (Jan. ‘19: 3.2%) should further support private consumption in 2019 (exp.: +1,1%), which should remain the main component of growth despite of the signs of stagnation coming from retail sales.

Real wages are likely to increase again by 3.1% this year (18: +3.1%). The growth rate in investment slowed to 3.1% in 2018 (’17: +3.6%). The rise in unit wage costs showed faster than the growth in percapita productivity in 2018, leading to a significant fall in margin ratios and a reduced investment capacity. A growing uncertainty about world trade might further hinder investment growth to 2.2% in 2019. Construction and productive investment should remain the second growth factor after private consumption.

April 2019