ifo Institute: German Economy Stabilizes
The German economy stabilized in the third quarter of 2019, which was “mainly attributable to industry,” says Timo Wollmershaeuser, Head of Forecasts at ifo. “Although this sector is still in recession, the rate of decline in production has slowed down. A major contributing factor is that goods exports are on the upswing again after plummeting in the previous quarter. One reason for this may be that the mood in the manufacturing sector in the export markets has improved again since the middle of the year, especially in emerging economies.”
At the same time, Germany’s consumer and construction industries remained in robust shape, Wollmershaeuser adds. Despite a slight slowdown in employment growth, private households recorded high income growth. “Alongside an appreciable rise in collective wages, state transfer payments such as pensions and child benefit also increased in the middle of the year. In addition, mortgage interest rates fell sharply once again in the course of the year, and the granting of housing loans continued to gain momentum.”
Overall, the German economy has cooled significantly in the last twelve months. Shortages in production capacity from the boom years of 2017–2018 have been largely resolved, resulting in capacity utilization that roughly corresponds to its long-term average. In the coming months, however, there is no reason to fear a deep recession in the economy as a whole. “First, signs that the weak industrial economy would impact the consumer and construction sectors via the labor market have so far largely failed to materialize. A contributing factor is the mechanism of short-time work, which over 10 percent of industrial companies are now expected to have made use of and which stabilizes employee incomes,” Wollmershaeuser says. “Second, the recession in industry should continue to ease. The probability of a hard Brexit or the US further escalating the trade war has decreased in recent months. At the same time, current order intake levels and the results of the latest ifo economic surveys indicate that there’s light at the end of the tunnel for the manufacturing sector.”
