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Germany
Activity apparently resumed a positive trend in the first part of the year. It continues to be held back by the slow growth
recorded by Germany’s main European trading partners. But the hoped-for remission in the sovereign debt crisis and the
firm trend in the activity of Germany’s trade partners outside the eurozone are expected to shore up activity over the next
few months. Moreover, ongoing pressures in the labour market are likely to force companies to increase wages. Private
consumption, which has contributed little to growth since the middle of the decade could therefore become the main
growth driver in 2012.
A hesitant return to growth
After dipping slightly at the end of last year (down by 0.2% QoQ in Q4 2011),
activity reportedly picked up again in the beginning of the year. It continues to
be held back by the slow growth recorded by Germany’s main European
trading partners. But the hoped-for lull in the sovereign debt crisis and the firm
trend in the activity of Germany’s trading partners from outside the eurozone
are expected to shore up activity and boost the economic agents’ confidence
over the next few months. Moreover, the historically low level of
unemployment and ongoing pressures in the labour market are likely to force
companies to increase wages. Inflation may not slow as quickly as forecast,
given the recent rise in oil prices, but the wage increases are likely to boost
household purchasing power and spending over the coming months. Private
consumption (57.4% of GDP in 2011) which, compared with exports (50% of
GDP in 2011), had contributed little to growth since the middle of the decade,
could become the main growth driver in 2012. Growth could reach 1.2% (after
3.1% in 2011) despite a smaller contribution from foreign trade.
Cautious improvement in expectations
GDP growth is expected to remains sluggish throughout the first part of the
year. This weakness is particularly visible in the manufacturing sector, where
activity declined by 1.9% 3m/3m in February. The recent trend in
manufacturing orders (up by 0.3% MoM in February after a contraction of
1.8% MoM in January) suggests that activity will be listless over the coming
months due to sluggish external demand. However, the longer-term outlook
for GDP growth remains positive thanks to the expected firm trend in domestic
demand and in services activity. The trend in the IFO index of expectations,
which rose by 0.3 percentage point in March to 102.7, is compatible with a
slight acceleration in growth in the spring.
Exports continue to suffer
Exports, which had contributed substantially to the growth rebound of the past
three years, contracted at the end of last year (-0.8% QoQ in Q4 2011) as
activity slowed at Germany’s main European trading partners. Sluggish
growth in the eurozone will continue to affect exports over the next few
months. However, the robust trends in economies outside the eurozone can
be expected to fuel demand, favouring a further decline in the eurozone’s
share of total exports of goods (39.7% in 2011, after 40.8% in 2010), mainly in
favour of China. The hoped-for lull in the public debt crisis should also boost
exports to eurozone countries in the second half.
The contribution to GDP growth made by foreign trade is also likely to be
affected this year by the acceleration in growth of imports. The trend in
imports, which is closely correlated to that of exports given the weight of
imported intermediary products in manufacturing production, is expected to be
upheld by a robust trend in household consumption.
Business leaders likely to continue to postpone
investment decisions till the summer
Investment in machinery and capital goods suffered at the end of 2011 from
the contraction in external demand and the uncertainty surrounding the public
debt crisis in the eurozone. A wait-and-see attitude will probably continue to
hamper investment spending until the spring. The trend in domestic capital
goods orders in January-February points to a slight downturn in investment.
Companies are nonetheless expected to gradually increase their investment
spending. The expected wage increases, against a background of slow
demand, could prompt businesses to reduce their margins thereby affecting
their financing capacity. However, businesses currently benefit from
advantageous financing conditions, after several years of wage moderation.
Moreover, the lull in the public debt crisis and the improved growth outlook of
Germany’s trading partners should boost business leaders’ confidence. The
acceleration in growth during the year is likely to gradually lead businesses to
increase production capacity, as the capacity utilisation rate (84.1%,
according to IFO) remained slightly above its long-term average at the
beginning of the year.
Private consumption to come to the rescue
Household spending, still hesitant at the end of 2011 despite the historically
low unemployment rate, is expected to gather pace during the year. An
expected remission in the eurozone public debt crisis and increased
purchasing power should boost household confidence and spending over the
next few months. The GfK survey for March shows that households continue
to expect further improvements in purchasing power thanks to wage increases
and lower inflation despite the recent rise in oil prices. Also, the advantageous
financing conditions could tempt households to invest in property and
purchase durable consumer goods. Private consumption, which in 2011 had
recorded its strongest rate of growth (0.6%) since 2006, is expected to
contribute substantially to growth in activity in 2012.
Labour market pressures are expected to increase
The situation in the employment market remains positive despite the
contraction in activity at the end of 2011 and the moderate rate of growth at
the beginning of 2012. In March, the unemployment rate dropped to 6.7%, its
lowest level in 20 years, with a substantial drop in the number of jobless after
a slight pause in February (down by 18 000 MoM after a fall of 3 000 in
February). Job creations had slowed significantly in February, when cold
weather had affected the construction industry. The pace of job creations is
nonetheless expected to accelerate over the next few months thanks to the
expected acceleration in activity growth. Job creations are likely to add to the
pressure already visible in the labour market as the unemployment rate is
already below its structural level of 7.2% according to the OECD, and the
activity rate having reached a new high at 77.6% in Q4 2011, compared with
70.5% in France. The ratio of job vacancies to jobless, close to its record high
in March (at 17.4% after 17.3% in February) reflects the ongoing pressures in
the labour market. These pressures point to larger wage increases, currently
being negotiated by employers and trade unions, than those obtained last
year (3.4% in nominal terms in 2011). The increase could be pronounced,
even if the number of hours worked in industry (excluding the construction
sector) continued to be 3.8% lower at the end of 2011 than in the third quarter
of 2008. Since the end of 2010, employment has grown faster in industry,
which pays higher wages, than in services (70% of total employment).
Halt in downward trend in inflation
Inflation resumed its downward trend in March due to a favourable base effect
in the energy sector. Inflation, which stood at 2.3% in March, is unlikely to
change much over the coming months and will remain above 2% this year. In
contrast, underlying inflation (1.4% in February) is expected to remain on an
upward trend over the next few months. The rise in oil prices and the
expected wage increases will put upward pressure on prices. The surveys
show that the rise in input prices is already putting increasing pressure on
businesses in the manufacturing and services sectors. The input price
component of the composite PMI rose to 58.9 in March, its highest level since
June 2011.
Temporary increase in the deficit in 2012
Germany managed to reduce its fiscal deficit (cumulative budget balances of
central and local government and social security) from 4.3% in 2010 to 1% in
2011 thanks to robust growth in activity. The slowdown in growth together with
the payment this year of the first two tranches (EUR 8.7 billion in 2012) of
Germany’s contribution to the European Stability Mechanism (ESM) will,
however, weigh on public finances in 2012. The deficit, which is expected to
rise to 1.6% of GDP this year, will gradually decrease over the following years
thanks mainly to the expected acceleration in growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Germany
Activity apparently resumed a positive trend in the first part of the year. It continues to be held back by the slow growth
recorded by Germany’s main European trading partners. But the hoped-for remission in the sovereign debt crisis and the
firm trend in the activity of Germany’s trade partners outside the eurozone are expected to shore up activity over the next
few months. Moreover, ongoing pressures in the labour market are likely to force companies to increase wages. Private
consumption, which has contributed little to growth since the middle of the decade could therefore become the main
growth driver in 2012.
A hesitant return to growth
After dipping slightly at the end of last year (down by 0.2% QoQ in Q4 2011),
activity reportedly picked up again in the beginning of the year. It continues to
be held back by the slow growth recorded by Germany’s main European
trading partners. But the hoped-for lull in the sovereign debt crisis and the firm
trend in the activity of Germany’s trading partners from outside the eurozone
are expected to shore up activity and boost the economic agents’ confidence
over the next few months. Moreover, the historically low level of
unemployment and ongoing pressures in the labour market are likely to force
companies to increase wages. Inflation may not slow as quickly as forecast,
given the recent rise in oil prices, but the wage increases are likely to boost
household purchasing power and spending over the coming months. Private
consumption (57.4% of GDP in 2011) which, compared with exports (50% of
GDP in 2011), had contributed little to growth since the middle of the decade,
could become the main growth driver in 2012. Growth could reach 1.2% (after
3.1% in 2011) despite a smaller contribution from foreign trade.
Cautious improvement in expectations
GDP growth is expected to remains sluggish throughout the first part of the
year. This weakness is particularly visible in the manufacturing sector, where
activity declined by 1.9% 3m/3m in February. The recent trend in
manufacturing orders (up by 0.3% MoM in February after a contraction of
1.8% MoM in January) suggests that activity will be listless over the coming
months due to sluggish external demand. However, the longer-term outlook
for GDP growth remains positive thanks to the expected firm trend in domestic
demand and in services activity. The trend in the IFO index of expectations,
which rose by 0.3 percentage point in March to 102.7, is compatible with a
slight acceleration in growth in the spring.
Exports continue to suffer
Exports, which had contributed substantially to the growth rebound of the past
three years, contracted at the end of last year (-0.8% QoQ in Q4 2011) as
activity slowed at Germany’s main European trading partners. Sluggish
growth in the eurozone will continue to affect exports over the next few
months. However, the robust trends in economies outside the eurozone can
be expected to fuel demand, favouring a further decline in the eurozone’s
share of total exports of goods (39.7% in 2011, after 40.8% in 2010), mainly in
favour of China. The hoped-for lull in the public debt crisis should also boost
exports to eurozone countries in the second half.
The contribution to GDP growth made by foreign trade is also likely to be
affected this year by the acceleration in growth of imports. The trend in
imports, which is closely correlated to that of exports given the weight of
imported intermediary products in manufacturing production, is expected to be
upheld by a robust trend in household consumption.
Business leaders likely to continue to postpone
investment decisions till the summer
Investment in machinery and capital goods suffered at the end of 2011 from
the contraction in external demand and the uncertainty surrounding the public
debt crisis in the eurozone. A wait-and-see attitude will probably continue to
hamper investment spending until the spring. The trend in domestic capital
goods orders in January-February points to a slight downturn in investment.
Companies are nonetheless expected to gradually increase their investment
spending. The expected wage increases, against a background of slow
demand, could prompt businesses to reduce their margins thereby affecting
their financing capacity. However, businesses currently benefit from
advantageous financing conditions, after several years of wage moderation.
Moreover, the lull in the public debt crisis and the improved growth outlook of
Germany’s trading partners should boost business leaders’ confidence. The
acceleration in growth during the year is likely to gradually lead businesses to
increase production capacity, as the capacity utilisation rate (84.1%,
according to IFO) remained slightly above its long-term average at the
beginning of the year.
Private consumption to come to the rescue
Household spending, still hesitant at the end of 2011 despite the historically
low unemployment rate, is expected to gather pace during the year. An
expected remission in the eurozone public debt crisis and increased
purchasing power should boost household confidence and spending over the
next few months. The GfK survey for March shows that households continue
to expect further improvements in purchasing power thanks to wage increases
and lower inflation despite the recent rise in oil prices. Also, the advantageous
financing conditions could tempt households to invest in property and
purchase durable consumer goods. Private consumption, which in 2011 had
recorded its strongest rate of growth (0.6%) since 2006, is expected to
contribute substantially to growth in activity in 2012.
Labour market pressures are expected to increase
The situation in the employment market remains positive despite the
contraction in activity at the end of 2011 and the moderate rate of growth at
the beginning of 2012. In March, the unemployment rate dropped to 6.7%, its
lowest level in 20 years, with a substantial drop in the number of jobless after
a slight pause in February (down by 18 000 MoM after a fall of 3 000 in
February). Job creations had slowed significantly in February, when cold
weather had affected the construction industry. The pace of job creations is
nonetheless expected to accelerate over the next few months thanks to the
expected acceleration in activity growth. Job creations are likely to add to the
pressure already visible in the labour market as the unemployment rate is
already below its structural level of 7.2% according to the OECD, and the
activity rate having reached a new high at 77.6% in Q4 2011, compared with
70.5% in France. The ratio of job vacancies to jobless, close to its record high
in March (at 17.4% after 17.3% in February) reflects the ongoing pressures in
the labour market. These pressures point to larger wage increases, currently
being negotiated by employers and trade unions, than those obtained last
year (3.4% in nominal terms in 2011). The increase could be pronounced,
even if the number of hours worked in industry (excluding the construction
sector) continued to be 3.8% lower at the end of 2011 than in the third quarter
of 2008. Since the end of 2010, employment has grown faster in industry,
which pays higher wages, than in services (70% of total employment).
Halt in downward trend in inflation
Inflation resumed its downward trend in March due to a favourable base effect
in the energy sector. Inflation, which stood at 2.3% in March, is unlikely to
change much over the coming months and will remain above 2% this year. In
contrast, underlying inflation (1.4% in February) is expected to remain on an
upward trend over the next few months. The rise in oil prices and the
expected wage increases will put upward pressure on prices. The surveys
show that the rise in input prices is already putting increasing pressure on
businesses in the manufacturing and services sectors. The input price
component of the composite PMI rose to 58.9 in March, its highest level since
June 2011.
Temporary increase in the deficit in 2012
Germany managed to reduce its fiscal deficit (cumulative budget balances of
central and local government and social security) from 4.3% in 2010 to 1% in
2011 thanks to robust growth in activity. The slowdown in growth together with
the payment this year of the first two tranches (EUR 8.7 billion in 2012) of
Germany’s contribution to the European Stability Mechanism (ESM) will,
however, weigh on public finances in 2012. The deficit, which is expected to
rise to 1.6% of GDP this year, will gradually decrease over the following years
thanks mainly to the expected acceleration in growth.
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