| Germany: Economic Outlook |

Real GDP grew by 1.5 per cent in 1999 with activity accelerating in the second half of the year. The upswing is export driven, but domestic demand is also gaining strength. Buoyant incoming orders, both domestic and foreign, improving business sentiment and rising capacity utilisation all point to a further acceleration of activity. Stronger consumption and investment are underpinned by phased income tax reductions for both households and business. Growth is therefore expected to accelerate to around 3 per cent both 2000 and 2001.

Sales to the dynamic Asian countries and Japan as well as to Latin America and Eastern Europe improved markedly, and stronger growth in the European Union also supported German exports. Activity was underpinned by steady growth of private consumption, which benefited from increasing real disposable income. Investment in equipment also remained robust though continuing to slow down in the second half. The recession in construction appears to have ended, although this is not true for the new Länder.

Industrial production continued to rise in the first quarter of 2000, and forward-looking indicators suggest that the upswing is continuing. Incoming orders in manufacturing have been buoyant since mid-1999, indicating an acceleration in domestic demand. Capacity utilisation in manufacturing has risen to its highest level since 1991, and business sentiment has improved substantially.

 

 

 

 

 

 

Financial indicators
1997
1998
1999
2000
2001
Household saving ratio
9,5
9,1
8,6
8,4
8,8
General government financial balance
-2,6
-1,7
-1,1
-1,2
-1,7
Currant account balance
-0,1
-0,2
-0,9
-0,5
-0,4
General government financial balance
-2,6
-1,7
-1,1
-1,2
-1,7
Short term interest rate
3,3
3,5
3,0
4,3
5,1
Long term interest rate
5,7
4,6
4,5
5,8
6,2

a) As a percentage of disposable income.
b) As a percentage of GDP
c) 3-month interbank rate
d) 10-year government bonds.

Source: OECD

 

External indicators
1997
1998
1999
2000
2001
in $ billion





Merchandise Exports
510,7
542,6
540,6
544
593
Merchandise imports
438,7
462,9
467,9
468
497
Trade Balance
72,0
79,7
72,7
76
96
Invisibles, net
-75,1
-84,4
-92,5
-87
-88
Currant account balance
-3,1
-4,7
-19,8
-11
8
Percentage changes





Merchandise export volumes
8,1
7,5
4,3
11,3
9,2
Merchandise import volumes
6,6
10,9
4,0
8,3
6,6
Export performance
-1,4
0,6
-4,2
0,6
0,5
Terms of trade
-1,6
3,4
-0,3
-2,5
0,2

a) Customs basis

b) Ratio between the total of export volumes and export market of total goods.

Source: OECD

Activity is projected to pick up further over the next two years, with GDP growing by around 3 per cent in both 2000 and 2001. World trade growth is expected to be buoyant, and accelerating exports are projected to be the main driving force in both years, with the foreign balance contribution to growth amounting to around one per cent in each year. As employment is rising and income taxes are being cut, disposable income will expand rapidly and private consumption is projected to grow at rates around 2 ½ per cent over the next two years.

A risk to these projections would arise if there were a “hard landing” of economic activity in the United States. On the domestic side, investment could turn out stronger than expected, but failure to connect tax reform with tight spending controls could have a negative impact on business sentiment, and growth could disappoint.

Source: OECD Economic Outlook June 2000