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Expansion Remains on Track
The economic upswing in Germany is set to continue. GDP is likely to grow 1.9 percent this year and 2.1 percent next year. Strong domestic drivers remain the dominant factors. The significantly lower number of refugees arriving since the start of the year will be mainly reflected in a somewhat lower fiscal impulse during the forecast period. The labor market situation will improve further against the backdrop of a buoyant economy and an ongoing employment-friendly trend in wages. Consumers will see their purchasing power supported this year by the downward pressure of oil prices on inflation. Although public sector budgets are likely to close both years in positive territory, the surpluses are due to economic conditions rather than fiscal consolidation efforts.
Global Financial Cycles Since 1880
"With the aim to provide a detailed understanding of global financial cycles and their relevance over time, the authors analyse co-movement in credit, house prices, equity prices, and interest rates across 17 advanced economies over 130 years. Using a time-varying dynamic factor model, they observe global co-movement across financial variables as well as variable-specific global cycles of different lengths and amplitudes. Global cycles have gained relevance over time. For equity prices, they now constitute the main driver of fluctuations in most countries. Global cycles in credit and housing have become much more pronounced and protracted since the 1980s, but their relevance increased for a sub-group of financially open and developed economies only. Panel regressions indicate that a country's susceptibility to global financial cycles tends to increase with financial openness and financial integration, the extent of mortgage-related lending, and the efficiency of stock markets. Understanding the cross-country heterogeneity in financial market characteristics therefore matters for the design of appropriate financial stabilization policies across countries and sectors."--Abstract
Uncertainty Weighs on Growth Only Temporarily
The German economy remains robust in a difficult international climate. In the current year, we expect GDP to increase by 2 per cent. That represents a reduction of 0.2 percentage points from our earlier forecast, mainly due to a slowdown in exports caused by sluggish growth in foreign markets during the winter half-year period. However, we still expect the economy to perform better than in 2015 and to expand very strongly overall. Most of this growth will be due to domestic factors. Consumer spending will increase at a very high rate throughout the forecast period, driven by rising incomes due to the sustained strength of the labor market. Boosted further by low oil prices and government tr...
Expansion is Set to Broaden
The economic recovery in the euro area remains moderate. While several sentiment indicators have improved considerably over the past few months, and therefore suggest that the recovery might gain some momentum, this has not yet been reflected in hard data, in particular not in the quarterly GDP growth rate in the fourth quarter of 2016. So far, there is a lack of striking evidence for a sustained acceleration of the recently recorded moderate pace of economic recovery. Meanwhile, political uncertainty will remain elevated over the forecast horizon due to upcoming elections in four out of five of the biggest member states, negotiations with the United Kingdom on terms and conditions for leaving the EU, and possible changes in trade policies triggered by the new US government. Nevertheless, the euro area economy is set to continue its recovery - unemployment continues to decline, numerous early activity indicators point upwards, fiscal policy is expected to be mildly expansionary over the forecast horizon, and the recovery is continuously supported by low interest rates and the low external value of the euro.
German Economy Closer to Its Limit
The air for the economic upswing in Germany is getting thinner. We expect German GDP to grow by 2.5 percent this year and by 2.3 percent in 2019 after an increase of 2.2 percent in 2017. With capacity utilization already above normal levels at the current juncture, our forecast implies that the German economy is entering a boom period. Capacity constraints already seem to limit production in the construction sector, in which capacity utilization is at historic highs according to survey data. Constraints are becoming also more and more apparent on the labour market where it becomes increasingly difficult for firms to fill vacancies. The tensions on the labour market will lead to stronger incr...
Weakness in Emerging Markets Weighs on Global Growth
The world economy is expanding at a more moderate pace with growth momentum continuing to shift from emerging to advanced economies. World GDP will increase by 3.3 per cent this year - even some-what less than the already modest growth in the recent past. For 2016 and 2017 we expect growth to pick up, although moderately, with global production expanding by 3.7 per cent. Advanced economies will gradually gain momentum over the forecast horizon. Emerging markets are set to overcome the currently weak and partly even recessionary performance but growth remains will remain low by histori-cal standards.
Upswing Stretched to Its Limits
The upswing in Germany is starting to falter. In the third quarter, the economy shrank for the first time in three years. This decline was primarily due to special factors. In particular, problems with the new vehicle certification standard (WLTP) affected the automotive industry. In addition to that, low water levels in the Rhine river impaired production. As these temporary factors expire, the economic expansion will pick up again. However, even so the upswing will increasingly face its limits. In the face of very high capacity utilisations, companies are having appreciable difficulties to keep expanding production at a quick pace. This is especially apparent in the construction sector, wh...
German Economy Cools Down
The German economy has shifted down a gear. After still very high economic momentum in Germany until the middle of last year, production stalled noticeably. Temporary stress factors such as the problems of automobile manufacturers with the new WLTP standard and the low water levels in the Rhine contributed substantially to this development. However, even without those factors, economic momentum has slowed down. The external economic environment, which is characterized by pronounced political uncertainty, also contributed to the poorer business outlook. This is putting a strain on exports, and companies' willingness to invest has deteriorated, too, despite the continued rather high capacity u...
