The German GDP (gross domestic product) forecast for 2015 has been cut primarily due to the weaker-than-expected Q1 GDP growth that provides a lower starting base for the year. Meanwhile German unemployment dropped in May to the lowest level in 24 years.
Deutsche Bank says that it has revised its 2015 GDP forecast to 1.6% despite robust underlying momentum. It says the Q1 GDP details provide some comfort relative to the disappointing 0.3% qoq (quarter-on-quarter) headline number. Final domestic demand was up 0.8% qoq while net-exports as well as inventories both provided a drag.
The economists say: "our 2015 story of GDP growth driven by strong domestic demand remains intact. Despite this, we lower our 2015 GDP forecast from 2.0% to 1.6%. This is primarily due to the weaker-than-expected Q1 GDP growth that provides a lower starting base for 2015. However, we still expect quarterly growth rates to average a healthy 0.4% qoq in 2015. Despite softening in April and May Ifo expectations and the composite PMI (purchasing managers' index) still point to 0.4%-0.5% qoq GDP growth for Q2. The details of the Ifo report broadly confirm the domestic strength vs lack of external traction story. For now, we still expect global developments to provide a bit more momentum in H2, but the most recent business cycle data out of Germany have generally disappointed, raising question marks over the (external) momentum going into H2."
The bank sees construction as a growth engine: "With leading indicators having reached record highs investment in construction should climb by 2.7% yoy in 2015 and 3.1% yoy in 2016 (in the wake of a 3.4% increase in 2014). Residential construction should remain the growth engine, expanding by over 3% in each of these two years, while commercial construction grows moderately. Given the plans for government spending programmes, to upgrade Germany's infrastructure in particular, we look for strong impetus from public construction. Some leading indicators point to a slowdown in construction growth.
This might be partly driven by changes in the regulatory environment, particularly the introduction of the 'Mietpreisbremse' (rent control), as well as capacity restrictions. If this trend continues, our baseline forecast could prove overly optimistic. The housing shortage in Germany's major cities and metropolitan regions is still the main feature of the German property market. A strong boost to construction investment would be needed to prevent further price increases."
Overall, while German exports are rising by less than in past cycles they were still up by 4.3% yoy in Q1 — on track to meet the bank's full year forecast. Export growth is limited by weak global trade and marked by a divergence between demand from developed markets (strength in the US and improvement in the Eurozone) and developing markets (Russia in recession, China weakening). Imports were up a stronger 5.0% yoy — a sign of the domestic strength especially in consumption. The economists said that the drop in oil prices provided an additional fillip to real imports. This effect should dissipate over the rest of the year.
Germany's Federal Employment Agency (Bundesagentur für Arbeit - BA) reported Tuesday that unemployment fell in May to the lowest level since 1991.
The number of unemployed dropped to a seasonally adjusted 2.786m people — a level last recorded in September 1991, a year after German reunification.
In unadjusted terms, the jobless total fell by 81,000 month on month to 2.762m, the agency said.
The unemployment rate — based on the jobless total against the working population as a whole — was at 6.4% in May, unchanged from the previous month and the lowest level since 1990.
Underemployment, which counts also people in labour activation schemes and in short-term inability to work situations, fell by 3,000. Overall, underemployment amounted in May 2015 to 3.634m people. That was 165,000 less than a year ago. The number of recipients of a basic allowance for jobseekers (SGB II) in May was at 4.429m.
In accordance with the International Labour Organisation standard, Destatis, the federal statistics office, reported that unemployment in April was 2.03m and the jobless rate was 4.9%.
Destatis said that in April 2015, roughly 42.6m people resident in Germany were in employment according to provisional calculations. Compared with April 2014, this was an increase of 213,000 persons or 0.5%. However, the year-on-year increase in employment has slowed since the beginning of 2015. The relevant increase had been larger in December 2014 (+0.9%), January 2015 (+0.8%), February 2015 (+0.6%) and March 2015 (+0.6%). Roughly 2.0m people were unemployed in April 2015, 103,000 fewer than a year earlier.
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