The government believes economy gaining momentum while respected think-tank maintains businesses not so sure about future, report Team IFM
Munich, May 28: Germany, it seems, is tiptoeing towards recovery. Its statistical office says the national economy is “gaining momentum” on expected lines; a greatly valued survey report says business confidence slipped this month, while an earlier report said the country’s factory output accelerated in April for the 10th straight month though at a more subdued pace.
“The German economy is gaining momentum,” the Federal Statistical Office or Destatis said in a statement released last Friday, explaining that one of the reasons for the “strong growth at the beginning of the year” was the extremely mild weather.
Destasis said its finding was consistent with its May 15 preliminary report that put the first quarter GDP nosing up 0.8 percent upon seasonal adjustments, compared with the October-December period of 2013.
“The last time GDP grew more in a quarter-on-quarter comparison was three years ago,” the statistical office said. “The moderate growth path of last year (of 0.4 percent in the last quarter of 2013) thus has accelerated.”
Alongside, a closely watched survey by one of Germany’s largest economic think-tanks, the Munich-based Ifo Institute for Economic Research, showed German business confidence dipped in May.
The report, released a few hours after Destasis announced its data, said German companies were less optimistic about both their current situation and the outlook for the next six months.
“Assessments of the current business situation were no longer as favourable as in April,” said Hans-Werner Sinn, President of Ifo Institute, in a statement. “A lull was seen in the German economy in May,” he said.
The Ifo report is based on monthly responses from about 7,000 companies.
The two reports come closely on the heels of a healthier picture painted for April in Germany’s manufacturing sector by an independent economy tracker, which said factories in the country brushed aside weaker increase in new orders to swagger into the second quarter.
The growth figures during April for the manufacturing sector were notched for the 10th consecutive month, according to the data released by Markit on behalf of BME, a German association of materials management companies.
According to it, sectoral operating conditions improved at a slightly sharper rate last month, with the final seasonally adjusted Markit-BME Germany Manufacturing Purchasing Managers’ Index or PMI – a single-figure snapshot of the performance of the manufacturing economy – rising from 53.7 in March to 54.1.
“Following the trend observed since May last year, output rose during April, and the pace of expansion was the second-quickest in nearly three years,” the Markit report said.
“Sector data suggested that the sharpest rise in production was reported by intermediate goods companies, followed by investment goods producers.”
GOVERNMENT UPBEAT
The Markit survey roundup reads like a precursor to the Destasis report of last week, which said that in a quarter-on-quarter comparison – adjusted for price, seasonal and calendar variations – domestic demand made “positive contributions” to growth.
“Especially,” it said, “capital formation increased markedly at the beginning of the year.” According to it, gross fixed capital formation in machinery and equipment rose 3.3 percent on the previous quarter, while gross fixed capital formation in construction was up by 3.6 percent.
Also, household final consumption expenditure increased by 0.7 percent over the fourth quarter of 2013, while the government raised its final consumption expenditure by 0.4 percent.
However, balance of exports and imports had a downward effect on the gross domestic product growth in the first quarter, it said. While imports of goods and services were up 2.2 percent, exports went up a slight 0.2 percent than the previous quarter’s level, and exports of goods decreased by 0.5 percent.
“As a result, the balance of exports and imports made a negative contribution to GDP growth (falling 0.9 percentage points),” Destasis said.
“This was counteracted by the building of inventories, which supported GDP with a calculated contribution to growth of 0.7 percentage points.”
DOUBTS PERSIST
Meanwhile, painting a slightly less upbeat picture of the German economic scenario was Ifo, which said its Business Climate Index for industry and trade had slipped to 110.4 points this month from 111.2 points in April. In short, German businesses were an unsure lot in May.
According to Ifo President Sinn, a lull was seen in the German economy this month. “Companies are also less optimistic about future business developments,” he said in the institute’s statement.
The statement also said the business climate index fell slightly, but was still at a “high level” in the manufacturing sector.
“Although assessments of the current business situation improved marginally, manufacturers are slightly less optimistic about future business developments,” Sinn said. “Manufacturers continue to expect stronger impulses from exports.”
In wholesaling, however, the business climate index fell markedly after April’s sharp increase, Ifo said. Assessments of the current business situation were “clearly less favourable”, while that of the business outlook deteriorated “only marginally”.
In retailing the business climate also clouded over, Ifo has found, with retailers “once again slightly less satisfied” with their current business situation. “For the first time in six months, they were also somewhat pessimistic on balance about future business developments,” Sinn said.
Similarly, in construction, the business climate index also declined slightly. Contractors were somewhat less satisfied with their current business situation than in April, and the six-month business outlook continued to deteriorate.
MANUFACTURING UP
The Markit report for April, on the other hand, while echoing Ifo’s concern in the retail segment, was more upbeat about manufacturing, which saw the current sequence of growth stretch to 10 months.
Survey participants attributed the rise to improving economic conditions and increased order intakes, with intermediate goods producers benefiting the most. Alongside, new export orders saw an upturn for the ninth straight month, leading to reduction in old backlog, but creating new ones.
“Following the trend observed since May last year, output rose during April, and the pace of expansion was the second-quickest in nearly three years,” Markit said in its report.
Sector data suggested that the sharpest rise in production was reported by intermediate goods companies, followed by investment goods producers, the report said.
“Final PMI data signalled a light acceleration in Germany’s manufacturing upturn in April, with production growth the second-sharpest in nearly three years,” said Oliver Kolodseike, economist at Markit and author of the report.