The economic upswing in Germany is already entering its tenth year, with the strong momentum of previous years no longer continuing in 2018. With an increase of 1.5 percent in real terms, economic output posted the weakest growth rate since 2013, although the result can still be termed generally solid.
Data from the Federal Statistical Office also reveals that the economy did not experience the feared „technical recession“ (two negative quarters in a row) in the second half of 2018. Following a decline in economic output of 0.2 percent in Q3, a slight increase seems likely again in Q4. Detailed data is not due to be published until February.
Even so, the German economy undoubtedly experienced a dip in growth in the second half of 2018, with particularly industry showing signs of deceleration since the middle of the year. In the automotive industry, the new emission standards and the diesel problem became a source of considerable turmoil. In other industrial sectors, such as chemicals, the low water levels in the autumn led to a production slowdown.
At the same time, global demand for German industrial products also lost momentum against the backdrop of various political burdens. German export growth more or less halved in 2018. As imports grew somewhat more strongly last year, foreign trade as a whole had a decelerating effect on aggregate economic activity.
The national use, on the other hand, remained robust at +1.7 percent. At +1.0 percent, however, private consumer spending rose more slowly than in previous years. By contrast, growth in capital expenditure was even slightly higher than in 2017, with especially corporate investment in plant and equipment more dynamic again and the construction industry continuing to post strong growth.
The very positive developments on the labour market remain an important cornerstone for the German economy. At +1.3 per cent, gainful employment grew at a similarly strong rate as in the two preceding years. This increase is primarily due to growth in employment subject to social insurance contributions. Higher labour market participation and immigration of labour from abroad were able to counterbalance the age-related demographic effects. This resulted in further strong income gains for employees.
The state again achieved a record surplus in 2018. For the fifth year in a row, the federal government, the federal states, local authorities and social insurance funds ended the year with a surplus of almost 60 billion euros in 2018. As a ratio of gross domestic product, the surplus ratio for the state amounts to 1.7 per cent for 2018 compared with +1.0 per cent in 2017. Once again, the good annual results of the public treasurers were made possible not least by the European Central Bank: with interest rates remaining persistently low, the interest payments to be made by the state declined significantly, dampening expenditure increases and ultimately resulting in the positive fiscal balance.