The Economic Situation in the Federal Republic of Germany in December 2009

Press Release of the Federal Ministry of Economics and Technology

The German economy is on the path toward recovery. Real GDP growth in the third quarter rose by 0.7 % (in price-, calendar- and seasonally adjusted terms) [2] over Q2. In particular, the replenishment of stocks and a slight pick-up in investment activity contributed to this. Major cyclical indicators suggest a further stabilisation of economic development in the fourth quarter. However, this is likely to be weaker than it was in the summer months. This does not affect the positive underlying trend in the overall economy. The forward-looking indicators of mood have continued their improvement. The ongoing recovery in the world economy seen in recent months has stimulated exports in particular. However, the global economic recovery continues to be driven by the stimulus provided by the expansionary monetary and fiscal policies. The wide-ranging government measures are also continuing to support Germany's domestic economy. The forces for growth are still weak, and the production capacities remain highly underutilised. This is having a negative impact on the labour market. So far, however, the job losses have been limited. Another positive factor is the fact that the overall conditions on the international financial markets have improved further.

Following a sharp rise in the preceding month, output in the goods-producing sector slowed in October. Adjusted for price and seasonal factors, it dropped by 1.8%. However, the upward trend remained in place (+3.0% in the three-month comparison). The main factor behind the recent decline was a 1.6% cut in industrial output. Whereas the upstream goods producers increased output by 0.6%, most of the production cutbacks took place in the capital goods sector (-3.5%). Nevertheless, the three-month trend of industrial production continues to point clearly upwards (+3.6%). The year-on-year comparison, on a three-month basis and adjusted for working days, is now down 15.4%. Demand for industrial products also fell again by 2.1% in October after adjustment for price and seasonal factors. This is probably due chiefly to the correction of what were recently very high growth rates in mechanical engineering and the motor vehicles sector. It is true that demand for industrial goods remained clearly positive (+5.6%) in the three-month trend, but the rate of increase has weakened. The business climate in the manufacturing sector continued to brighten in November. An expansion of production is also likely in the fourth quarter, even if it will probably be more moderate than in Q3.

Construction output contracted again in October by 2.4 % in price- and seasonally adjusted terms. However, the upward trend remained in place in the three-month comparison (+1.0 %). Here, civil engineering continued to perform somewhat better than building construction, primarily due to government stimulus measures. Construction output exceeded the previous year's level, by 1.6% in the three-month comparison. Demand in the construction industry proper dropped sharply again in September - by 5.9% after adjustment for price and seasonal factors. However, the trend in this sector is still pointing upward (three-month comparison: +1.2 %).Whilst the business climate in the construction industry proper remained very downcast, the government infrastructure measures do suggest that there will be something of a boost for construction activity in the coming months.

Consumer spending, which proved to be a substantial driving force behind overall economic development in the first half of 2009, weakened in the third quarter by 0.9% after adjustment for price and seasonal factors. Nor can the fourth quarter be expected to show a recovery. Retail sales (excluding motor vehicles) stagnated in October (+0.0%) and the longer-term trend points downward (three-month comparison: -0.8%). Also, trade in motor vehicles suffered following the expiry of the scrappage scheme for old cars. The expected job losses are also likely to worsen the situation, although the current state of the labour market is more robust than had been anticipated.

Export activity has clearly picked up in view of the global economic recovery. Coming from an extremely low level, exports of goods started to increase again in the third quarter, and they also expanded in October, by a seasonally adjusted 2.5%. At -15.9%, the latest (unadjusted) figures show exports still well below the level of the preceding year. Nominal imports of goods dropped by 2.4% in October - following the sharp rise in the third quarter. The outlook for foreign trade has become brighter in the light of the global economic recovery. This is confirmed by the rising trend in foreign demand for capital goods and the even more optimistic corporate export expectations.

So far, the labour market has proved resilient in the face of the recent slump. This was due both to a high level of flexibility on working hours and to relief from the short-time working arrangements. October saw another moderate decline in employment, at -13,000 people (resident concept). The unadjusted figures put total employment at 40.70 million, down 145,000 from a year ago. And registered unemployment actually fell slightly in recent months, with the most recent figures showing a decline of 7,000 in November (seasonally adjusted). However, these figures are also affected by special factors resulting from the reorientation of labour market policy instruments. Compared to a year ago, the number of unemployed persons rose by 227,000 to 3.215 million.The unemployment rate fell slightly to 7.6 %. In the coming months, the negative factors still affecting the labour market suggest that there will be further job losses.

Price trends continue to remain extremely calm at all stages of the sales chain. Consumer prices in November were just slightly above the previous year's level (+0.4 %). The falls in prices for energy and foodstuffs continued to exert a restraining influence on the inflation rate - even if the effect was now less strong. The core inflation rate (excluding energy and seasonal foods) also stayed at its low level of +1.0%. Compared to the previous month, consumer prices in November fell slightly again by 0.1 %.

Note:
A detailed report and commentary on the overall situation and trends in the German economy will be published in the January edition of the monthly report, Schlaglichter der Wirtschaftspolitik ("Economic policy highlights", in German only). This report will be available on the website of the Federal Ministry of Economics and Technology in the middle of the 52nd week of 2009.

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[1] This report is based on statistical data that were available as of 16 December 2009.
[2] Where not otherwise specified, the seasonally adjusted data have been calculated in accordance with the Census X-12-ARIMA procedure.