German real GDP grew 3.6% in 2010, rebounding sharply after the record contraction during 2009.
IHS Global Insight Perspective
Significance: Although the German economic recovery last
year was initially triggered by exports, private and public consumption, as
well as investment, increasingly contributed.
Implications: Growth during the fourth quarter of 2010 is
likely to have been fairly weak, owing to the surge in imports and inclement
weather conditions. Underlying growth momentum will remain robust, however,
ensuring a fresh acceleration from the first quarter of 2011 onwards.
Outlook: IHS Global Insight's January interim forecast
for average GDP growth of 2.7% in 2011 (2.6% unadjusted for calendar factors)
can be maintained as robust consumption and investment growth will compensate
for the import-led deterioration in the contribution from net exports. Growth
in 2012 is currently expected at 2.0%.
Preliminary results provided by the Federal Statistical
Office (FSO) show that German GDP grew a strong 3.6% year-on-year
(y/y) in 2010 in unadjusted terms and 3.5% in calendar-adjusted terms. This
unwinds the bulk of the previous year's record contraction of 4.7% y/y. Net
exports provided a growth contribution of 1.1 percentage points, domestic
demand (minus inventories) of 1.7 percentage points, and a build-up of stocks
0.8 percentage point. Among domestic demand components, rebounding fixed
investment (1.0 percentage point) was the chief contributor, but both private
(0.3 percentage point) and government consumption (0.4 percentage point) were
also responsible for Germany's best growth performance since the
post-reunification boom in 1991. Investment in turn was mainly boosted by
equipment spending (adding 0.6 percentage point), but construction investment
also contributed 0.3 percentage point.
Component Breakdown Confirms Broad-Based Nature of
Current Upswing
The data provided by the FSO are not corrected for
working-day effects, but these were only minimal in 2010 (exerting a dampening
impact on GDP of roughly 0.1 percentage point) and matter little when
interpreting the results. Real exports of goods and services rebounded by 14.2%
y/y, unwinding most of the drop of 14.3% seen in 2009. Export levels are
expected to have returned to their peak levels of early 2008 again towards the
end of 2010, helped by the strong recovery of global demand (especially in
Asia). Imports increased 13.0% y/y, which means that they more than compensated
for their fall in 2009 (of 9.4%). Imports additionally benefited from the
underlying recovery in consumer demand during 2010, which ended a period of
lasting weakness observed during most of the past decade. The net export
performance nonetheless improved from -2.9% in 2009 to 1.1% in 2010 as the
plunge in exports in late 2008 had a large negative impact on average 2009
growth whereas the opposite tendency in late 2009 boosted average 2010 exports.
The current pattern of exports and imports thus suggests that average 2011
growth will be hurt by the surge in imports in late 2010.
Real domestic demand was responsible for 2.5 percentage
points of GDP growth in 2010, a third of which was caused by a rebuilding of
inventories. Thus domestic demand minus inventories contributed about half of
overall GDP growth (1.7 percentage points). The expenditure component mainly
responsible for this improvement was real fixed investment (up 5.5% y/y),
recouping about half of the previous year's plunge (of 10.1%). The further
breakdown shows that investment in equipment was the driving factor (up 9.4%
y/y), but construction investment also showed an encouraging increase of 2.8%
y/y that was probably boosted by the government economic stimulus package with
regard to transport and education infrastructure. Meanwhile, the boosting
impact of inventories was largely concentrated in the first half of 2010, when
firms were reassured by the strong momentum of growing order books that the
recovery would be sustained. In addition, commodity prices were still more
subdued at that time compared with the second half of the year.
Private consumption increased 0.5% y/y in 2010, following
a decline of 0.2% in 2009. The surprisingly limited increase was related to the
base effect of the boost provided during the first half of 2009 by the car
scrappage subsidy. This led to a temporary lull in consumer demand in the
second half of 2009 and early 2010, dampening average consumer spending in
2010. A separate breakdown by components of consumer expenditure shows that
only the category transport and telecommunications, which reflects car
purchases by private individuals, posted a sharp decline (of 4.2%). Almost all
the other categories of private consumption increased in 2010 (led by
clothing/shoes). The ongoing improvement in labour market conditions during
2010 played a significant role in this.
Finally, growth in government consumption maintained a
robust pace of 2.2% y/y, following an increase of 2.9% in 2009. This still
mirrors government efforts to combat the crisis in 2009–10 by intentionally not
cutting down on public expenditure ahead of 2011.
Strong Imports and Weather Likely to Have Hurt Q4 Growth
Due to the usual revisions to the data for the first
three quarters of the year—which will only be made public with the upcoming
releases of 15 February ("flash") and 24 February (detailed)—it is
not possible to accurately calculate the fourth-quarter 2010 performance from
the full-year results published today. The GDP growth outcome of 3.5% in
calendar-adjusted terms (3.6% unadjusted) was 0.1 percentage point weaker than
IHS Global Insight had last been predicting. This could be related in principle
to downward revisions to the data for the first three quarters of 2010.
Alternatively, if there were no revisions at all, then fourth-quarter GDP
growth should have been around 0.3–0.4% quarter-on-quarter (q/q). Such a
relatively weak performance relative to the first three quarters of 2010
(average quarterly growth of 1.2%) can be attributed firstly to the surge in
imports already shown by monthly customs trade data available until November,
and secondly to the early start to a particularly severe winter in December.
The second reason suggests that there will be the potential to make this up
either in the first or second quarter of 2011. Overall, average growth in 2011
will probably benefit from a statistical overhang effect of roughly 1.2%—this
figure shows what annual growth would be like in 2011 if GDP were to be exactly
flat during all four quarters of the year. IHS Global Insight's forthcoming
(but already completed) January interim forecast is predicting growth of 0.7%
q/q for the fourth quarter and full-year growth of 2.7% for 2011.
Deterioration of Public-Sector Finances Restrained by
Robust Economic Upswing
Separately, the FSO has also published a first estimate
of the 2010 public-sector budget situation—including the social insurance
system—according to Maastricht criteria. According to preliminary calculations,
it expects a deficit of 3.5% of GDP to have developed in 2010, following a
deficit of 3.0% in 2009 and slight surpluses in 2007 (0.3%) and 2008 (0.1%).
Revenues increased 0.9% and expenditures 2.2%, the latter being fairly limited
considering various discretionary fiscal stimulus measures and automatic stabilisers
of the social security system. Indeed, the latter by itself nonetheless managed
a small surplus. The worsening of public finances as a result of the global
crisis of 2008–09 has thus turned out to be fairly limited, notably on an
international comparison. This is closely linked to the surprisingly good
performance of the labour market, which can partly be explained by the positive
impact of expanded short-time work schemes.
Outlook and Implications
The GDP growth spike to 3.6% in 2010 rests for the most
part on the surge during the first half of the year, but underlying growth
momentum remained solid thereafter too. Notwithstanding ongoing dampening
effects from the debt crises in several other Eurozone countries, and
consequent risks to the banking sector, Germany's economic recovery is too
broad-based to be easily derailed in the next few quarters. Even the
anticipated dampening effect of rising inflation on consumer demand should not
be overstated in view of improving labour market and wage prospects.
Exports will continue to post solid growth thanks to high
competitiveness and a euro that cannot strengthen unduly in view of persistent
Eurozone debt woes. Indeed, the euro may well weaken some more initially,
offering additional export potential to non-Eurozone countries. This is
especially true of German investment goods—Germany's prime export domain—going
to Asia. In addition, investment should consistently provide solid GDP growth
contributions in the coming quarters as capacity utilisation rates exceed
long-term averages again. Leading indicators rebounded anew in late 2010 (the
purchasing managers' index) or moved to new historical highs (the Ifo business
confidence index).
The fiscal tightening being enacted in 2011 is certainly
a restraining factor, given the support that had conversely been given by the
government's economic stimulus measures during 2009-10, but the extent of this
policy change is not radical. The European Central Bank (ECB) will continue to
pursue a very expansionary monetary policy until at least end-2011 as it has to
take into account the very weak economic conditions in much of the Eurozone
periphery. Finally, IHS Global Insight expects the euro to fluctuate around 1
euro:US$1.30 for much of 2011, thus acting as a supportive factor for German
exports.
Our most recent forecast for average German GDP growth in
2011 (January interim round) is 2.7% in calendar-adjusted terms (2.6% without
adjustment). Today's GDP release suggests that this may have to be toned down
slightly if the weak fourth quarter of 2010 is not fully offset by
corresponding additional strength in the first or second quarter of 2011.
Nevertheless, underlying growth is broad-based and robust enough to withstand
potential headwinds in the months ahead. Private consumption in particular will
be strengthened additionally by the higher wage settlements that can now be
expected because of the healthy situation in the labour market. The dependency
on exports for impulses to German growth has certainly diminished for the foreseeable
future. German GDP growth in 2012 is currently expected at 2.0%.
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31/12/2010| |
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31/10/2010| |
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08/04/2010| |
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01/08/2009| |
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29/07/2009| |
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29/07/2009| |
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29/07/2009| |
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27/07/2009| |
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27/07/2009| |
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17/07/2009| |
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15/07/2009| |
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15/07/2009| |
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28/03/2009| |
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15/03/2009| |
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15/03/2009| |
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15/03/2009| |
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15/03/2009| |
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18/01/2009| |
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10/01/2009| |
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06/01/2009| |
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05/01/2009| |
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02/01/2009| |
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24/12/2008| |
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24/12/2008| |
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24/12/2008| |
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27/11/2008| |
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27/11/2008| |
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27/11/2008| |
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27/11/2008| |
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03/10/2008| |
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03/10/2008| |
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24/09/2008| |
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24/09/2008| |
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20/09/2008| |
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20/09/2008| |
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18/09/2008| |
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18/09/2008| |
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18/09/2008| |
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18/09/2008| |
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10/09/2008| |
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10/09/2008| |
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08/09/2008| |
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17/08/2008| |
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17/08/2008| |
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11/08/2008| |
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11/08/2008| |
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11/08/2008| |
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11/08/2008| |
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11/08/2008| |
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13/05/2008| |
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12/05/2008| |
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12/05/2008| |
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10/05/2008| |
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04/05/2008| |
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02/05/2008| |
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27/04/2008| |
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27/04/2008| |
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24/04/2008| |
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24/04/2008| |
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24/04/2008| |
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24/04/2008| |
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24/04/2008| |
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24/04/2008| |
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06/04/2008| |
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26/03/2008| |
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20/03/2008| |
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19/03/2008| |
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13/03/2008| |
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10/03/2008| |
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07/03/2008| |
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05/03/2008| |
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18/02/2008| |
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06/02/2008| |
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03/02/2008| |
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01/02/2008| |
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01/02/2008| |
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21/12/2007| |
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21/12/2007| |
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08/12/2007| |
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08/12/2007| |
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02/11/2007| |
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30/10/2007| |
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30/10/2007| |
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27/10/2007| |
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25/10/2007| |
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20/10/2007| |
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04/10/2007| |
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28/09/2007| |
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31/08/2007| |
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30/08/2007| |
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15/08/2007| |
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11/08/2007| |
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11/08/2007| |
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31/07/2007| |
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28/07/2007| |
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28/07/2007| |
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04/07/2007| |
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30/06/2007| |
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30/06/2007| |
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30/06/2007| |
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30/06/2007| |
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16/06/2007| |
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13/06/2007| |
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30/04/2007| |
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26/04/2007| |
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01/04/2007| |
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28/03/2007| |
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28/03/2007| |
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25/03/2007| |
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20/03/2007| |
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20/03/2007| |
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28/02/2007| |
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23/01/2007| |
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23/01/2007| |
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08/01/2007| |
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29/12/2006| |
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25/11/2006| |
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11/11/2006| |
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28/10/2006| |
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14/10/2006| |
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23/09/2006| |
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30/08/2006| |
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02/08/2006| |
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02/08/2006| |
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30/07/2006| |
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30/07/2006| |
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27/07/2006| |
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27/07/2006| |
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21/07/2006| |
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20/07/2006| |
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18/07/2006| |
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16/07/2006| |
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13/07/2006| |
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12/07/2006| |
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29/06/2006| |
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09/05/2006| |
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18/02/2006| |
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29/01/2006| |
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23/09/2005| |
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