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Germany’s Roaring Economy, Despite Appearances, May Be Headed Lower

Slowdown in the German economy could lead to more employee unrest. Source: DPA
Slowdown in the German economy could lead to more employee unrest.
  • Why it matters

    Why it matters

    If downward trend continues, everyone will suffer.

  • Facts

    Facts

    • The banks are lowering their expectations for growth.
    • Construction and industry production are among the economy’s weak spots.
    • Small-business owners’ optimism is diminishing.
  • Audio

    Audio

  • Pdf

Germany’s economy has nothing to be ashamed about. But there are concerns about growth.

The gross domestic product is expected to increase in the year’s first half  by 0.75 percent. Consumer confidence is at a record high, and the labor market is relatively stable. Seasonally adjusted, there were 57,000 fewer unemployed people at July’s end than at the year’s start. The German government is getting along without new taxes because revenues are adequate.

But negative signals are multiplying. Government economists are tight-lipped. The banks are distancing themselves from their previous forecasts. Deutsche Bank now only expects 1.5 percent growth for the year, for example.

The trend is clearly downward. The Ifo Institute’s business climate index sank three times in a row, industry orders are coming in at a moderate rate and the recovery of industrial production was modest in June. Production rose in June, seasonally and price adjusted, by 0.3 percent above the previous month. The second quarter’s average was 1.5 percent below the previous quarter’s level.

Construction declined, too, as much as 5.8 percent. “The German economy is suffering from a summer flu,” said Marco Wagner of Commerzbank, and it appears uncertain as to how prolonged and serious it will be.

“The German economy is suffering from a summer flu.”

Marco Wagner, Commerzbank economist

Industry, construction and energy companies produced more in June than in the preceding month for the first time since February, according to the Federal Statistical Office of Germany. But the increase of 0.3 percent was not enough to offset the latest declines. The economics ministry had reported a 3.2 percent drop in orders in industry.

Optimism is diminishing among small-business owners. Businesses with less than 10 employees are scaling back, above all because the businesses fear rising labor costs. That’s according to a poll of 7,500 small businesses by the Association of German Chambers of Commerce and Industry, whose results were seen by Handelsblatt. The minimum wage and retirement age of 63 are other big concerns for small businesses.

“In many sectors, these businesses are correcting their personnel planning downwards, such as in the taxis, trade and cleaning services,” said Achim Dercks, the association’s deputy chief executive.

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