German economy on a record-breaking run

Germany’s economic upswing is already entering its ninth consecutive year and it accelerated again in 2017. With a real increase of 2.2 per cent gross domestic product (GDP) posted the strongest growth since 2011. Personal consumption expenditures increased substantially – at a similar pace to that seen in the previous two years – thus paving the way for real GDP growth. But investment expenditure also increased strongly last year. In particular, capital expenditure by German companies was more dynamic again. Unlike in the previous year, foreign trade also had a positive impact in 2017 although it made only a relatively small contribution to growth.

As in previous years, household consumer spending was fuelled mainly by the favourable development of the employment market in 2017. Employment increased +1.5 per cent, faster than at any time since 2007. This was mainly the result of an increase in the number of jobs subject to social security contributions. A higher work force participation rate and the immigration of workers from abroad offset the demographic effects of an ageing population. This caused wage and salary income to increase strongly again

Investment also grew more dynamically in 2017. Building investments were up +2.6 per cent after a similarly strong previous year. German companies invested 3.5 per cent more in equipment – i.e. mainly in plant, machinery and vehicles – than in 2016.

German exports also increased more strongly again in 2017 thanks to the global recovery: exports of goods and services were up 4.7 per cent, while imports even grew somewhat more strongly (+5.2 per cent). Thus the net export of goods and services, in other words the difference between exports and imports, contributed + 0.2 percentage points to GDP growth in purely arithmetical terms while in 2016 it made a slightly negative contribution (-0.3 per cent).

Finally in 2017 the German state reported a record surplus of EUR 38.4 billion thanks to the strong economy. Accordingly, the Federal state, the Länder, the local authorities and the social security funds ended the year with a surplus for the fourth consecutive time. The German state reported a surplus-to-GDP ratio of 1.2 per cent for 2017, after +0.8 per cent in 2016. Last, but not least, the European Central Bank was to thank for the good end-of-year performance by the custodians of the state coffers: because of the ongoing low interest rate environment the interest paid by the state declined significantly, which curbed expenditure growth and ultimately made the positive budget surplus possible.

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