The German economy is getting some wind in its sails just as the waters are about to get rough.
The nation, the first of the world’s biggest developed economies to report on its 2016 performance, probably achieved expansion of 1.8%, helped by a pickup toward the end of the year. The German result, forecast by economists surveyed by Bloomberg, would be the fastest since 2011 and top expected euro-area growth of 1.6%.
Record-low unemployment and improving business sentiment are a testimony to Germany’s economic strength heading into a potentially tumultuous 2017 that will see challenges from national elections in autumn to risks from Britain’s exit negotiations with the European Union.
The country has also benefited from the European Central Bank’s unprecedented monetary stimulus, which President Mario Draghi said last month will be prolonged through at least the end of this year.
“When you look back, it’s clear that the German economy has been driven by public and private expenditure, which has to do with a robust labour market, higher wages and very low inflation,” said Andreas Rees, an economist at UniCredit Bank in Frankfurt. “The risks are clearly skewed to the upside for this year.”
While the Federal Statistics Office will only provide figures for the whole of 2016 today, it usually shares its assessment of the fourth quarter. That estimate is likely to show growth picked up, with economists predicting the rate of expansion doubled to 0.4% from the previous three months.
Reports published so far have painted an upbeat picture, setting the scene for a potential positive surprise, said Andreas Scheuerle, an economist at Dekabank in Frankfurt. The Bundesbank is forecasting Germany’s economy expanded at a “significantly faster pace” in the fourth quarter.
Industrial production rose for a second consecutive month in November, business sentiment jumped to the highest level in almost three years in December and a survey of purchasing managers suggested manufacturing and services expanded the most in five months at the end of the year.
Germany’s VDMA Mechanical Engineering Industry Association said yesterday that machinery orders increased an annual 5% in November, driven by a jump in demand in euro-area countries. That was the biggest increase since June.
Meanwhile, unemployment has continued to recede, with the jobless rate at its lowest level since the country’s reunification more than a quarter of a century ago. That decline is likely to come to a halt as refugees from war-torn countries including Syria and Iraq enter into the labour market.
Inflation is also on the rise. Consumer prices increased 1.7% from a year earlier in December, a rate not observed since mid-2013. With contributions coming primarily from more expensive fuel and food, the surge may weigh on consumer spending.
“If you look into 2017, the pattern and the composition of growth will be the same but everything will be a bit less,” said Carsten Brzeski, an economist at ING-DiBa in Frankfurt, who argues the economy is currently experiencing a technical rebound rather than the beginning of a new phase of expansion.
“There is simply no new momentum.”
