RaboResearch - Economic Research

Germany: die ‘Exportweltmeister’

Economic Update


The German economy posted a solid growth figure in the final quarter of 2013. Unexpectedly, it was almost fully driven by exports. For the current year, we expect German growth to be supported by both exports and domestic demand.

Back to its export-driven growth model

In the fourth quarter, the GDP volume increased by 0.4% q-o-q, after an increase of 0.3% q-o-q in 2013Q3 (figure 1). The breakdown shows that the growth was almost entirely export driven. Net exports contributed a whopping 1.1%-points to the headline figure. This is due to a strong rise of the export volume by 2.6% q-o-q, which is the strongest increase in 3 years’ time. Import growth slowed down to 0.6% q-o-q, which reflected the weak development of domestic demand. Net of inventories, domestic demand added only 0.1%-point to the GDP figure. Private consumption declined unexpectedly by 0.1% q-o-q, while also government consumption stagnated. Both construction and equipment investment grew by 1.4% q-o-q, probably supported by the positive export outlook. Finally, inventory formation subtracted 0.8%-point of the real GDP growth figure, suggesting that manufacturers have to produce more than demand in the coming quarters in order to restore the inventories.

Figure 1: Q4 GDP-growth driven by net exports
Figure 1: Q4 GDP-growth driven by net exportsSource: Reuters EcoWin
Table 1: Forecast table Germany
Table 1: Forecast table GermanySource: Reuters EcoWin, Rabobank

Outlook for manufacturing sector remains positive

Hard data indicate that the industrial sector had a good start of the year. Industrial production (excluding construction) increased with 0.4% m-o-m in January. Even if production is flat over the next two months, this would leave the quarterly production growth on 1.1% compared to 0.6% in the fourth quarter of 2013. Yet, manufacturing order data indicate a further increase in demand (figure 2), in January it rose by 1.2% m-o-m or 2.2% 3m/3m. The regional breakdown shows that mainly non-euro area countries drove the order growth.

The producer confidence indicators confirm this positive outlook for the industry. Although the manufacturing PMI (figure 3) decreased to 54.8 in February (56.5 in January), it is still significantly above the no-change value (50). The broader outlook for the whole German economy improves as well. The PMI services (from 53.1 to 55.9), the EC Economic Sentiment Indicator (ESI) (from 106.7 to 107.1) and the IFO Business Climate Index (110.6 to 111.3) increased all and point towards a sturdy GDP growth. This current strength of the German economy, capacity utilisation close to its long-term average, historical low interest rates, and improving economic conditions in its main trading partners, bode well for business investment going forward.

Figure 2: Order data point towards a further increase in exports
Figure 2: Order data point towards a further increase in exportsSource: Reuters EcoWin
Figure 3: Manufacturing PMI points to solid GDP-growth
Figure 3: Manufacturing PMI points to solid GDP-growthSource: Reuters EcoWin

Consumer confidence does not automatically lead to increased consumer spending

The GfK consumer confidence indicator (figure 4) hit a 6-year high in its latest survey (8.5 points for March compared to 8.3 points in February). However, during 2013, the GfK consumer confidence indicator painted a too rosy picture by indicating solid growth in private consumption. In the last two quarters, consumption though almost stagnated. Good news is that the retail sales seems to have turned a corner, they increased 2.5% m-o-m in January after a 2.0% m-o-m fall in December, which bodes well for consumption in the first quarter. A note of caution is that retail sales figures are notoriously volatile and, therefore, do not always act as a reliable indicator.

Consumers have good reasons to be optimistic. The labour market remains tight with the unemployment rate constant at 6.8% (national definition) and 5.1% (ILO definition). The tightness of the labour market led to a healthy rise in agreed earnings over 2013 (+2.4% y-o-y). However, the nominal earnings index of the Federal Statistics Office, which also includes the sectors without a collective agreement, increased a bit less (1.3%) than inflation (1.5% over 2013). Going forward, a rise in nominal wages is widely expected (the German government expects a gross wage growth of 2.7% in 2014). Moreover, the current low inflation (1.2% in February) supports the real purchasing power of consumers and is therefore helpful for consumption growth.

Figure 4: Consumer confidence at a 6-year high
Figure 4: Consumer confidence at a 6-year highSource: Reuters EcoWin
Figure 5: Labour market remains tight
Figure 5: Labour market remains tightSource: Reuters EcoWin

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