Germany Economic Outlook

Overview

The German Economy is expected to grow by 1.4% in 2017 and 1.6% in 2018. The main driver for growth is the positive situation in the labour market and rising household income. Consequentially this shall result in a significant increase in Consumer Price Inflation, the increase in inflation will offset the fall in prices as a result of lower crude oil and commodity prices. Flat growth in world trade has resulted in a lack of stimuli for foreign business in the German economy.

Key Figure Projections for 2017

· Real GDP 2017 1.4%

· Unemployment Rate 6.4%

· Wage Growth 2.5%

· Consumer Price Index 1.5%

Contribution to GDP

Germany’s service sector has not grown as a part of GDP since 1995, it has remained at 68%. This is mainly due to a lack of reforms in the sector which have resulted in high barriers to entry. There is a lack of new business opportunities, resulting in weak investment and stagnant growth. In light of this Germany is world renowned for its highly skilled labour force which is why Services are able to make up such a huge chunk of GDP.

Over the year of 2016 the Construction industry performed well and had increased because of mild winter conditions. Unfortunately there was drop in construction investment which lead to the industry moving backwards. The construction industry is expected to perform well in 2017 because of increased housing demand for immigrants.

Export oriented industries are expecting an upswing in 2017 as they have seen an increase in foreign orders. The expectations remain conservative because of a subdued world economy, some companies have adopted a wait and see attitude and have not invested. German exports will be influenced by the fluctuations in oil prices and movements of the Euro. The current expectation is that the current surplus will fall as a result of a weakening demand in China.

An increase in capacity utilisation in the manufacturing sector is still expected as we will see an increase in sales and sales expectations. The increase in sales will be provided by boosts in local demand and not so much in international trade. The strength in Germany’s industrials lies within mechanical engineering and automobiles. the country is 4th largest exporter of automobiles.

Agriculture sector is almost insignificant in the bigger picture of Germany’s economy. It only contributes 0.6% to the GDP of the nation. The country is still able to provide 90% of the country’s nutritional needs through local production.

The domestic economy is the backbone of the German economy. Growth over the year of 2017 is going to be buoyed by increased household demand and government spending. Previously Germany’s fiscal policies have not created the right structural support for growth, this has resulted in the government adopting expansive fiscal policies and increasing spending, making it exciting to see how that will affect the overall economy. The ECB is also set to keep interest rates low for 2017 and adopt an “accommodative” policy, Germany is set to benefit most from this.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.

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