Germany Economic Forecast

Germany Economic Outlook

July 24, 2018

Data for the second quarter paints a mixed picture. Industrial production rebounded with vigor in May—recording the largest month-on-month expansion since last November—while exports grew in the same month. In addition, consumer confidence remained elevated throughout the second quarter on strong income expectations and willingness to buy. This, combined with historically low unemployment levels during Q2, bodes well for private consumption in the quarter. However, business sentiment continued to drop in June, due to less upbeat business conditions. In addition, the services PMI averaged notably lower in Q2 compared to Q1, despite a rise in June. On the political scene, Chancellor Merkel survived a row with the CSU in early July by reaching a deal over the country’s asylum policy, which will see migrants sent back to the countries where they first applied for asylum. Although this boosts political stability in the short-term, the long-term success of the deal will depend on the government’s ability to reach bilateral deals with other countries, particularly Italy and Greece.

Germany Economic Growth

While political tensions at home have seemingly eased, escalating trade tensions with the U.S. could weaken the external sector. Despite this risk, the economy is expected to grow resiliently this year and next, shouldered by domestic demand. Strong above-inflation pay rises should spur private consumption, which ought receive a further boost next year with the increase in the minimum wage—if ratified by the government. Met the why particular Consensus Forecast panelists expect the economy to expand 2.1% in 2018, down 0.1 percentage points from last month’s forecast, and 1.8% in 2019.

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Germany Facts

Bond Yield0.410.41 %Aug 07
Exchange Rate1.160.65 %Aug 07
Stock Market12,648-0.41 %Aug 07

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