Investment and exports taking a breather – consumer services gradually recovering
According to the (tri-annual) business survey of the German trade association DIHK the weakening in the German economy since Feb05 set the tone in most sectors. Recently domestic investment has been the real disappointment, reducing output and order momentum in mechanical engineering to below 3% in the last 3 months. Consumer related sectors like cars, retail trade and personal services – albeit hit by notoriously weak domestic demand – seem to be bottoming. Cars in 2Q even staged in impressive demand comeback. The relative sector performance also reflects a critical stage of the German reform process: the outlook for regular jobs suffers from measures to stimulate the creation of low paid jobs and persistent job shifts abroad. Although the DIHK survey implies current weakness to be slightly more protracted than previously expected, it leaves the big picture of a modest recovery intact. Among the foundations for a second leg of the recovery are: a bottoming in construction, underlying strength in IT services and progress in financial service restructuring.
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© Graham Bishop
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