06 December 2013

Bundesbank: Outlook for the German economy - Macro-economic projections for 2014 and 2015

The Bundesbank's monthly report finds that the German economy has picked up momentum again. The German economy could grow by 1.7 per cent in the coming year and by 2.0 per cent in 2015. (Includes comments from Bundesbank/Dombret and BMWI.)

The driving forces for these developments are changing, however. While external impulses had the upper hand during the upturn which followed the economic and financial crisis, domestic economic activity has come to the fore recently. A part in this is played by the German economy being in good shape, as is shown by the low unemployment rate, continuing growth in employment, and marked growth in earnings. Low interest rates are also having an effect. These factors are supporting private consumption and driving housing construction. By contrast, external trade has been tending to be weak of late. With the cyclical situation continuing to become brighter in the industrial countries and given the emerging improvement in the euro area, there should also be a pick-up in exports and, in their wake, an upturn in corporate investment and imports. 

Under these conditions, the German economy could grow by 1.7 per cent in the coming year and by 2.0 per cent in 2015, after an increase of no more than 0.5 per cent in 2013. In calendar-adjusted terms, this would result in growth rates of gross domestic product (GDP) amounting to 0.6 per cent in 2013, 1.7 per cent in 2014, and 1.8 per cent in 2015. Given potential growth of 1.4 per cent in each of the next two years, aggregate capacity utilisation will increase moderately from a normal level in 2013. This will be accompanied by a further rise in employment, predominantly fed by immigration. The current account surplus could go down to the level it had before the sovereign debt crisis escalated. Leaving aside the details of the new German government’s coalition agreement, which were not yet known at the time this projection was completed, the government budget could show something of an improvement and achieve a surplus of just under ½ per cent of GDP in 2015. There could be a distinct fall in the high debt ratio.

The sustained improvement in the labour market situation compared with the past decade is reflected in an acceleration of wage growth, which is to be seen as a normalisation. Consumer price inflation as measured by the HICP could initially moderate from 1.6 per cent in 2013 to 1.3 per cent in 2014, but then go up again to 1.5 per cent in 2015. If energy is excluded, the rate is likely to increase to 1.9 per cent in 2015 in the wake of the accelerated rise in wages.

The risks to the forecast are to be seen, first, in the external setting. The effects of the euro-area debt crisis have been contained and major reforms have been initiated. Nevertheless, the burdensome level of debt and the structural problems that continue to exist mean that the European and global economies remain highly vulnerable. Second, domestic risks exist. A number of the measures under discussion for the coalition agreement have the potential to harm the efficiency of the labour and goods markets, and the fiscal stance will probably be eased. The fact that the underlying pace of growth might be stronger than described here is to be seen as a cyclical upside opportunity.

Press release

Full report

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In a speech on 12 December in the German embassy in Paris, Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, commented as follows:

"Looking at Germany, the current situation seems to be quite pleasing: Germany’s economy is in infinitely better shape than just ten years ago. Nevertheless, I do believe that we need a more level-headed assessment – Germany, too, faces structural challenges.

There are four important areas we have to address: First, Germany has to cope with unfavourable demographics, which will be increasingly felt in the coming years. Second, due to globalisation firms are going to face increasing pressure from emerging market competitors. Third, fiscal policy will have to bring down high public debt. And fourth, Germany is trying to completely change its energy policies. This change will have a profound impact on the competitiveness of industry and the purchasing power of households.

Thus, focusing on those countries in the centre of the crisis might distract us from the fact that all countries in Europe face structural challenges – including France and Germany. At the end of the day, Europe can only work if all of us move in the same direction. Only together can France and Germany act as the driving forces of European integration. And only together can France and Germany help to solve the current crisis."

Full speech

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The Federal Ministry for Economics and Technology also issued a press release on the economic situation in the Federal Republic of Germany in December 2013, finding that: 

• The German economy remains on a moderate growth trajectory.
• Growth is being driven by domestic demand, with foreign demand providing little stimulus so far.
• Similarly, the goods-producing sector had a slow start in Q4. The sentiment indicators and the state of the order books do, however, suggest that output will grow in the months to come.
• The labour market in Germany is developing favourably and the number of gainfully active is rising.

Full press release, 11.12.13 © 2013 Federal Ministry of Economics and Technology

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