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News : EU Economy Last Updated: Jan 12, 2015 - 7:30 AM


Germany will grow by 1% in 2015
By Michael Hennigan, Finfacts founder and editor
Jan 12, 2015 - 7:25 AM

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Following a weak winter half in 2014/15 Germany's economy looks likely to regain its footing as 2015 progresses. However, sluggish performance at the turn of the year means growth will probably average only 1% in 2015 after 1.4% in 2014, according to Deutsche Bank economists.

In early December, the  Bundesbank had downgraded its growth forecasts for the German economy to 1% in 2015, half the pace it had forecast last June. Jens Weidmann, the central bank's president, said that “there is reason to hope that the current sluggish phase will prove to be short-lived.”

Deutsche Bank said: "It is encouraging...that private consumption should remain a major pillar of growth, whereas net exports are likely to have a neutral impact. Nonetheless, signs are increasing that some – in our opinion misguided – economic policy moves (such as the introduction of a nationwide minimum wage as well as an enhanced pensions package) are weighing on the labour market and thus on consumption. Given a weakening of cyclical activity and the costs of economic policy measures, we expect the general government budget to be slightly in deficit in 2015."

On Friday, Germany reported that exports and industrial production fell in November 2014.

Also on Friday a separate report [pdf] from Deutsche Bank showed that Germany's service sectors have shown themselves to be keener to invest than industry in recent years. "The net fixed assets held by the service sectors grew by almost 28% in real terms between 1995 and 2012, although their growth rate has slowed over time. By contrast, the capital stock in the industrial sectors has shrunk by 1.6% in real terms.

While, on the one hand, politicians in Germany have been expressing regret or even voicing criticism over the country's current lack of capital spending, on the other they have recently introduced measures (such as their policies on pensions and labour markets) that are hampering investment in Germany rather than stimulating it; this approach is inconsistent."

The economists say that within industry itself, the automotive and pharmaceutical sectors in particular have boosted their capital expenditure in Germany. By contrast, the textile & clothing, wood-processing and food sectors have seen their net fixed assets decrease sharply in real terms. All energy-intensive sectors (paper, building materials, chemicals, metal production) reduced their capital stock between 1995 and 2012 – substantially in some cases. "Given the uncertainty surrounding the direction of long-term energy policy in Germany, there are very few signs that these industries will overcome their reluctance to invest any time soon."

Among the service sectors, providers of business services and logistics raised their capital spending in Germany considerably. The trends within the information and communications sector were highly divergent, with strong growth among IT and information service providers but decreases in telecommunications.

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