Brisk consumer spending drives robust growth in Germany in 2016

In 2016, the German economy continued on its robust growth track. With a real increase of 1.9 percent, the economic output actually scored the strongest growth since 2011. Private consumer spending and public consumption expenditure rose appreciably, as they had in 2015, laying the basis for macroeconomic growth.

Private households’ zest for consumer spending was supported again in 2016 first and foremost by favourable labour market trends. Gainful employment climbed sharply, and is now at a new record, while at the same time the unemployment rate in 2016 fell to a new low. As a result, as in recent years employees’ income surged. In real terms, private consumer spending in 2016 rose +2.0 percent and thus as strongly as in 2015.

In this context, in the past year two “one-time effects” helped boost private consumer spending and public consumption expenditure. The low price of oil braked energy prices and the inflation rate overall and created scope for money to be committed to other things. And the high influx of refugees in 2015-16 spelled greater government expenditure, something reflected in both public consumption expenditure (e.g., public spending for the refugees’ board and lodging) and in private consumer spending (monetary benefits from the state that refugees themselves then spent), which served to boost growth. In this context, public consumption expenditure shot up by +4.2 percent or faster than at any point since 1992, which was shortly after German reunification.

Price-adjusted construction investments in 2016 reported a strong 3.1 percent rise. Investments in house building actually jumped by 4.3 percent, while those in “non-residential construction” (public and commercial building and civil engineering) increased by a real 1.4 percent on the year. On balance, the government raised its investment spending in 2016 by a massive 5.8 percent after adjusting for prices, the highest growth rate since the public economic stimulus programme of 2009. Private-sector investments grew 2.2 percent, whereby the increase in private investments in plant and equipment was a somewhat disappointing +0.9 percent in light of what was a generally good economic cycle.

Despite the noticeable rise in expenditure, on balance public budgets remained on track for consolidation in 2016: the public sector, meaning the Federal government, the states, the local authorities and the social-insurance agencies, ended the year with a financial surplus of a good EUR 19 billion – thanks to a very strong tax base. Measured in terms of gross domestic product, and calculated in the respective prices, the government thus posted a budget ratio for 2016 of +0.6 percent. The government thus closed the third consecutive year with its budget in the black.

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