Overseas demand pushes growth even as job creation and domestic demand remain listless, reports Team IFM
Berlin, February 26: The German economy continued to grow moderately at the end of the year 2012-13, with government data released on Tuesday showing exports driving the economy in the fourth quarter but sluggish domestic demand acting as a brake.
Fresh data from the Federal Statistical Office or Destatis confirmed its February 14 prediction that the German gross domestic product (GDP) increased by 0.4 per cent – upon price, seasonal and calendar adjustment – in the fourth quarter of 2013 over that in the previous quarter.
In a statement, the statistics office said that in a quarter-on-quarter comparison after seasonal adjustments, it appeared that the upswing was mainly on account of “positive contributions” made mainly by foreign trade.
In the second and third quarters of 2013, too, the German economy had grown (by 0.7 per cent and 0.3 per cent, respectively), after a period of stagnation at the beginning of the year, it said.
On the other hand, the data showed that domestic demand subtracted 0.7 percentage points from growth, though economists have predicted that as wages stabilise, it will be domestic consumption that will drive the German economy in 2014.
The current economic stability is in tune with data released by a research body on Monday, which said the German business community was confident about the economy holding its own.
The Ifo Institute Business Index, based on a survey of 7,000 firms from the country’s manufacturing, construction, wholesaling and retail sectors, rose for the fourth successive month in February to reach its highest point since July 2011, bucking forecast by an economists’ poll that predicted otherwise.
“Assessments of the current business situation were significantly better than last month,” said Ifo Institute President Hans-Werner Sinn in a statement.
“Expectations regarding future business developments dipped slightly, but remain optimistic. The German economy is holding its own in a changeable global climate,” Sinn added.
Mixed Demand
Tuesday’s statistics office data showed it was overseas demand that propelled the economy in the fourth quarter while lacklustre domestic consumption fettered further growth.
According to provisional calculations, exports increased more considerably than imports. Compared with the third quarter of 2013, exports of goods and services were up 2.6 per cent. Imports – signifying domestic needs – increased by not more than 0.6 per cent in the same period.
Consequently, the balance of exports and imports contributed 1.1 percentage points to GDP growth and was thus the key economic engine in the period under review.
In a year-on-year comparison, positive contributions to growth were made mainly by foreign trade in the fourth quarter of 2013.
In price-adjusted terms, exports of goods and services were up 4.1 per cent on a year earlier even as imports did not increase to the same extent in the same period. As a result, the balance of exports and imports contributed 0.9 percentage points to GDP growth compared with a year earlier.
As regards domestic demand, different developments were reported. Gross fixed capital formation both in machinery and equipment and in construction rose markedly compared with the third quarter of 2013.
However, inventories declined considerably, which slowed down economic growth, the data showed.
Final consumption expenditure changed only marginally. While government final consumption expenditure remained unchanged at the level of the previous quarter, household final consumption expenditure was slightly lower.
Employment Up
The economic performance data also showed 42.2 million persons had found employment in the fourth quarter of 2013 in Germany. As indicated in a statistics office statement on February 18, this was an increase of 243,000 or 0.6 per cent on a year earlier position.
Incidentally, last week data showed real wages in Germany fell in 2013 for the first time in four years.
Overall labour productivity too increased by 0.7 per cent in the fourth quarter compared with the same quarter of 2012.
Thanks to the slight upward movement in employment numbers, price-adjusted domestic demand was also marginally up compared to a year before: final consumption expenditure of both households and general government rose by 1 per cent in the quarter year-on-year.
At current prices, the gross national income rose by 3.6 per cent in the fourth quarter of 2013 as compared to the year ago period, while the net national income rose 4.4 per cent. However, the two components of the net national income did not contribute equally: while the compensation of employees increased by only 2.6 per cent, property and entrepreneurial income rose 8.9 per cent according to first provisional calculations.
Incidentally, while releasing its business confidence report on Monday, Ifo Institute indicated it expected an upturn in the German economy.
According to it, assessments of the February current business situation were significantly better than last month despite expectations of future business developments dipping slightly. “The German economy is holding its own in a changeable global climate,” it said in its report.
Similarly, Sylvain Broyer, chief euro-region economist at Natixis in Frankfurt, said he expected growth acceleration this year in Germany. “It’ll be led by a private consumption like last year,” Bloomberg quoted Broyer as saying.
“This year, what should be new is business investment.”