ifo Institute: Weakness in German Industry Yet to Spread to Other Sectors
The weakness in German industry has so far shown little sign of spreading to other sectors of the economy. “This distinguishes the current downturn from that of the years 2011 to 2013, when Germany was caught up in the euro crisis,” says Timo Wollmershaeuser, Head of Forecasts at ifo, in response to the German Federal Statistical Office’s latest figures on economic output (GDP) for 2019.
As 2012 gave way to 2013, he says, the country slipped into a general economic recession, with a simultaneous drop in value added both in industry and in consumer- and construction-related economic sectors.
“In contrast, in 2019 the economy was supported by strong upswings in the consumer and construction sectors. Although employment growth slowed over the course of last year, income growth in private households remained high,” Wollmershaeuser adds. “Noticeable rises in collectively agreed wages, lower taxes, as well as higher pensions and more child benefits have strengthened purchasing power.”
In addition, brisk public investment and consumption have bolstered domestic demand. “According to our estimates, fiscal policy is likely to have been responsible for about 0.2 percentage points of GDP growth in 2019,” Wollmershaeuser says. And lastly, mortgage interest rates also fell sharply once again and the granting of housing loans gained momentum.
For its part, the slowdown in industry is being driven by weak global demand for German industrial goods plus structural change in the automotive industry. Both these factors have contributed to the fact that the German manufacturing industry has been in recession since mid-2018. According to estimates by the ifo Institute, the production slump in the automotive industry alone is likely to have shaved 0.75 percentage points off GDP growth last year.
Publication
ifo Konjunkturprognose Winter 2019: Deutsche Konjunktur stabilisiert sich
ifo Institut, München, 2019
ifo Schnelldienst, 2019, 72, Nr. 24, 27-89
