QI-2021 QUARTERLY REPORT GERMANY
Economy set to grow 3.5 percent in 2021 Powerful effect in investment, foreign trade in boosting roles
▪
Real economic output in Germany will grow by 3.5 percent this year. The BDI confirms its January forecast. A return to pre-crisis levels can only be expected by the second half of 2022. Last year, gross domestic product dropped by 4.9 percent.
▪
The agreements reached by the federal and state governments on 3 March set the path for a phased re-opening. The best the economy can hope for in the first quarter is a sideways movement. The recovery will then firm up from the second quarter onwards.
▪
Powerful effect in investment: We expect investment in plant and equipment to rise by seven percent (last year: down 12.1 percent), and construction investment to increase by one half a percent (last year: up 1.9 percent).
▪
Foreign trade is boosting the economy: The BDI anticipates exports to rise by six percent (last year: down 9.4 percent) and imports to be up by a clear 5.5 percent (last year: down 8.5 percent).
▪
Consumption spending of private households will increase by four percent this year (last year: down 6.1 percent). The tax cuts that took effect at the start of the year and high savings from last year will animate consumption.
▪
Industrial production is also pointing up. New orders for industry are currently substantially higher than one year ago. The purchasing managers’ index for manufacturing is also indicating expansion, recently reaching a three year high.
Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
Content German economy ................................................................................................................................ 3 A little growth in fourth quarter despite second wave of pandemic ....................................................... 3 Fourth quarter foreign trade activities only just short of last year’s level .............................................. 4 Labour market: employment levels recovering slowly from Covid-19 shock ........................................ 6 Solid rise in incoming orders for industry at the end of the year ........................................................... 7 Industrial production almost reaches last year’s level at year-end ....................................................... 8 Capacity utilisation returning to normal ............................................................................................... 10 Sales near last year’s level in fourth quarter ....................................................................................... 11 Industry recovers thanks to favourable base effect ............................................................................ 12 ifo business climate: business confidence on the rise ........................................................................ 12 Outlook ............................................................................................................................................... 13 Imprint ................................................................................................................................................ 16 Basic data for national accounts ..................................................................................................... 17
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
German economy A little growth in fourth quarter despite second wave of pandemic The second wave of the coronavirus pandemic substantially dampened the economic recovery. In the fourth quarter 2020 gross domestic product nudged up 0.3 percent compared to the previous quarter following price, calendar and seasonal adjustment. In the third quarter growth was up 8.5 percent. Compared to the fourth quarter of the previous year, real economic output was down by 2.7 percent, following a year-on-year drop of 3.9 percent in the third quarter. In the fourth quarter 2020, German GDP rose 0.2 percentage points more than was suggested by figures published at the end of January. Annual results were also slightly more favourable, showing a decrease of just 4.9 percent. In the fourth quarter 2020, Germany’s economic output was generated by a workforce of 44.8 million. That is 747,000 people or 1.6 percent less than in the fourth quarter last year.
Growth in real GDP in percent 10 8 6 4
2.6
2.2
1.3
2
0.6
0 -2 -4 -6
-4.9
-8 -10 -12 I
II
III
IV
I
2016
II
III
IV
I
II
2017
III
2018
IV
I
II
III
2019
IV
I
II
III
IV
2020
change over previous year quarter change over previous quarter change over previous year Source: Federal Statistical Office
On the output side of GDP, price-adjusted gross value generated in the fourth quarter dropped by 3.6 percent across all economic sectors. The harshest drops were suffered by other service providers (down 18.2 percent) and corporate service providers (down 9.1 percent). The retail, transport and hospitality sectors also recorded significant negative growth, although, at 6.3 percent, this was not even half as severe as in spring (minus 14.3 percent). Among public service providers and the education and healthcare sector gross value added dropped by 3.2 percent. The sectors information and communication services, financial and insurance services and real estate, on the other hand, all only posted negative growth of under one percent. In manufacturing, gross value added also decreased
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
less than average at minus two percent. Construction was the only sector that was able to post an increase in added value (up 5.3 percent). On the expenditure side of GDP, consumption was the main factor dampening growth. Even so, priceadjusted private consumption expenditure in the fourth quarter only dropped half as much as during the first lockdown, going down 6.5 percent compared to the fourth quarter last year. As in spring, spending on hotels and restaurants was down by more than 50 percent. Expenditure on leisure, entertainment and culture dropped by almost 20 percent, while spending on clothing and shoes was down 15.8 percent. Spending on furnishings and household goods, on the other hand, increased by 6.2 percent. Consumers also spent 4.8 percent more on food, beverages and tobacco than before the pandemic. Spending on housing, energy and water barely moved, following price adjustment. State consumption expenditure increased by 2.6 percent, pulling up consumption’s negative contribution to growth by 0.5 percentage points to only minus 2.9 percentage points. Gross fixed capital formation decreased by 0.9 percent in the fourth quarter. While construction investment increased by three percent, investment on plant and equipment dropped by a notable six percent. Investment in other assets (including software and patents) dropped slightly, going down one percent. Considerable changes were seen in inventories, resulting in a negative contribution to growth of 0.4 percentage points. All in all, investments shaved 0.6 percentage points off GDP growth. Exports were 2.9 percent lower than in the previous year following price adjustment. Imports dropped more substantially, going down 5.1 percent in the same period. In sum, foreign trade contributed 0.8 percentage points to growth. Fourth quarter foreign trade activities only just short of last year’s level In the fourth quarter 2020, the export of goods and services dropped by 2.1 percent compared to the same period last year (country-specific seasonally adjusted data is not available). The annual result was much worse, going down 9.3 percent. In absolute terms, exports to France fared worst by far, going down 1.82 billion euros or seven percent. Other than that, it was mainly countries outside the EU that saw falling demand for goods and services from Germany. Exports to the US dropped by 762 million or 2.6 percent, to Russia by 743 million or 11.2 percent, and to the United Kingdom by 628 million or 3.4 percent. Exports to Canada also fell by almost one fifth and to Saudi Arabia by a little more than one quarter. Demand from China was already recovering since the middle of 2020, with exports increasing by a substantial 2.15 billion euros or 8.6 percent in the fourth quarter. After exports to Poland only just missed last year’s level in the third quarter, they rose by a substantial 1.13 billion euros or 6.7 percent in the fourth quarter. Exports to Turkey rose by 880 million euros or one sixth, the best quarterly performance so far. Among its trade partners in the euro area, exports to Belgium were notable, rising 470 million euros or 4.2 percent.
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
German exports and imports in Q4 2020 in selected countries Year-on-year change increase (+) or decrease (-) in exports in million euros
increase (+) or decrease (-) in imports
in %
in million euros
in %
France
24 304
- 1 822
-
7.0
Russia
6 111
- 1 844
-
23.2
USA
28 628
-
762
-
2.6
Great Britain
8 922
- 1 334
-
13.0
5 883
-
743
-
11.2
USA
17 241
- 1 334
-
7.2
Czech Republic
10 750
-
648
-
5.7
Libya
215
-
909
-
80.9
Great Britain
17 987
-
628
-
3.4
France
15 580
-
823
-
5.0
2 176
-
516
-
19.2
913
-
725
-
44.3
10 239
-
486
-
4.5
23 234
-
696
-
2.9
1 336
-
479
-
26.4
Norway
2 275
-
545
-
19.3
846
-
475
-
36.0
Nigeria
247
-
472
-
65.6
South Africa
1 607
-
413
-
20.4
Japan
5 614
-
199
-
3.4
V. A. Emirates
2 453
-
390
-
13.7
Singapore
1 498
-
359
-
19.4
14 705
+
546
+
3.9
Spain
8 469
+
607
+
7.7
Hungary
7 684
+
658
+
9.4
Czech Republic
12 687
+
899
+
7.6
Russia
Canada Spain Saudi Arabia Vietnam
Belgium
Singapore Netherlands
Italy
11 781
+
471
+
4.2
Turkey
6 176
+
880
+
16.6
Poland
18 021
+ 1 135
+
6.7
Poland
16 687
+ 1 790
+ 12.0
China
27 250
+ 2 151
+
8.6
China
30 900
+ 1 893
+
6.5
Total
324 907
-
-
1.9
Total
273 697
- 2 391
-
0.9
6 161
Sources: Federal Statistical Office, own calculations
In the fourth quarter 2020, German imports only declined slightly compared to the same period last year, going down 0.9 percent. For the year overall, however, imports were down by 7.1 percent. The biggest drop in absolute terms was seen in imports from Russia (down 1.84 billion euros or 23.2 percent), followed by imports from the United Kingdom which dropped 1.33 billion euros (down 13.0 percent) and the United States, where imports were down by 1.33 billion euros or 7.2 percent. Imports from raw material producing countries such as Libya (down 80.9 percent), Norway (down 19.3 percent) and Nigeria (down 65.6 percent) also dropped massively. Imports from China recorded strong growth, rising 1.89 billion euros or 6.5 percent. In total, imports from Germany’s eastern neighbours rose even strongly than those from China, with imports from Poland up 1.80 billion euros, the Czech Republic up 899 million, and Hungary up 658 million. Among our trade partners from within
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
the euro area, imports of goods and services from Spain were up 607 million or 7.7 percent, and from Italy up 546 million or 3.9 percent. Labour market: employment levels recovering slowly from Covid-19 shock According to preliminary data from the German Federal Statistical Office, the number of people in employment increased by 16,000 in January 2021 following seasonal adjustment, after rising 11,000 in December. Compared to January 2020, the number of people in employment was down by 739,000 or 1.6 percent to 44.36 million. The latest figures on employment subject to social security contributions are also trending positively. According to projections of the German Federal Employment Agency for December 2020 (latest available figure), the number of people in such employment was 33.69 million, which is around 64,000 more than in November, but 0.2 percent less than one year ago. The number of workers in fulltime employment subject to social security contributions was 131,000 or 0.5 percent lower year on year while the number of workers in part-time employment subject to social security contributions increased by 79,000 or 0.8 percent. German labour market* 34
4 Unemployed persons (right axis) 3
32 2 Employed persons covered by social security (left axis) 1 30 0
28
2013 2012
2014 2013
2015 2014
2016 2015
2017 2016
2018 2017
2019
2020
2 2021
-1
Difference in the number of workers making social security contributions from the same month last year (right axis) *seasonally adjusted in million Source: Federal Employment Agency
The employment figures for other forms of employment decreased much more than for jobs subject to social security contributions. The number of self-employed including contributing family members dropped by 53,000 in the fourth quarter 2020. Compared to last year, the number of self-employed was down by 194,000 or 4.7 percent to a total of 3.92 million. The number of people exclusively in marginal employment also dropped, going down by 403,000 or 8.9 percent to 4.13 million in December 2020 according to preliminary figures from the Federal Employment Agency. The number of unemployed individuals increased by 509,000 or 21.2 percent to 2.90 million in January 2020 (year on year). Unemployment also increased following seasonal adjustment for the first time since July 2020, going up by 9,000. The unemployment rate as calculated by the Federal Employment Agency was at 6.0 percent in February 2021, or 4.6 percent according to the ILO definition.
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
Solid rise in incoming orders for industry at the end of the year In December 2020, according to preliminary figures, new orders for industry dropped 1.9 percent compared to the previous month following price, calendar and seasonal adjustment. While domestic orders only decreased 0.9 percent compared to the previous month, orders from abroad were a substantial 2.6 percent lower. Countries outside the euro area actually ordered 0.5 percent more, but euro area demand plunged 7.5 percent within the same period. Despite the weak performance in December, new orders in the fourth quarter 2020 were up seven percent on the previous quarter. In year on year terms, new orders were up for the first time in two years, by a robust 5.1 percent. Domestic and foreign demand expanded equally here. Demand from third countries was well above last year’s level, up 9.2 percent, while orders from within the euro area dropped slightly year on year, going down 1.1 percent.
New orders, manufacturing 29.9 115 25
110 105
15
100
7.0 5
95 90
-5
-2.5
85
-15
80 75 -22.3
-25
70 65
-35 2016
2017
2018
2019
2020
Change over previous year, two-month-average, in percent (right axis) Volume index in manufacturing, two-month-average, seasonally adjusted (left axis) Change over previous quarter (q-o-q), in percent Source: Federal Statistical Office
Among the main groups of industrial goods, demand for intermediates recorded the highest growth in the fourth quarter 2020. Quarter on quarter, orders increased 10.7 percent. The order volume was also up 9.7 percent year on year. Demand from at home increased 12.6 percent compared to the previous year while growth in demand from abroad was much less pronounced, rising only 6.9 percent. Demand for capital goods increased year on year for the first time in over two years. The increase in orders of 2.9 percent was driven mainly by demand from abroad, which rose by 4.2 percent. Domestic orders marked time, nudging up by a mere 0.3 percent. Consumer goods producers received 4.3 percent more orders in the fourth quarter 2020 than in the third quarter and 1.8 percent more new orders than in the same period last year. Demand from abroad
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
was also the driving force here, rising 5.1 percent. Domestic orders went the other way, dropping 2.8 percent. German industry registered a solid increase in orders at the end of a year that was dominated by Covid19. The drastic slump in orders in the middle of 2020 was largely compensated for in the second half of the year. The drop in orders remained in single-digit percentages throughout the year, ultimately clocking in at minus 6.4 percent. This is a smaller drop even than in the years 2008 and 2009. Foreign orders, at minus 7.3 percent, declined more than domestic orders, which only went down by five percent. Domestic orders nonetheless fell short of the previous year’s level for the third consecutive year. According to figures from the ifo Institute, orders in hand in manufacturing decreased by 0.2 down to three production months at the beginning of the first quarter, thus reaching the average level of the last ten years. While the backlog of orders among producers of intermediates dropped by 0.1 to 2.6 production months, and 0.3 down to 3.8 production months for producers of capital goods, they increased from 1.8 to two months for consumer goods producers. The figures on the backlog of orders, which the Federal Statistical Office has been publishing again since 2015, show that the price-adjusted order backlog in manufacturing for December 2020 was 0.3 months higher than the previous month following seasonal and calendar adjustment. This puts the backlog of orders 3.6 percent higher than in February last year, before restrictions were imposed to stop the pandemic. Although unprocessed orders from at home only increased by 0.1 percent in December 2020, this was nonetheless seven percent more than before the crisis. The backlog of orders for foreign orders increased somewhat more, rising by 0.3 percent, but this was only two percent more than pre-crisis levels. Industrial production almost reaches last year’s level at year-end In December 2020, production in manufacturing increased by a slight 0.9 percent compared to the previous month following seasonal and calendar adjustment, although the figures are still 1.6 percent down year on year. Construction activity continued to increase in December, while energy production dropped 2.9 percent compared to the previous month. Output in the production sector (manufacturing, energy and construction) stagnated overall compared to November 2020 and was down one percent compared to December 2019. In the fourth quarter 2020, output in manufacturing increased 6.6 percent after seasonal and calendar adjustment, following an increase of 14.1 percent in the third quarter. Year on year, production dropped for the tenth quarter in a row. However, with a decline of 3.4 percent in the fourth quarter 2020, following minus 10.6 percent in the third quarter, the rate of the downward plunge has flattened considerably. Energy production increased 4.5 percent following seasonal and calendar adjustment compared to the previous month, although it was still down 2.9 percent compared to last year. Output in construction increased both quarter on quarter (up four percent) and year on year (up 3.1 percent). From the start of 2020, mainstream construction was mainly generating the momentum, but finishing eventually outpaced mainstream construction by the end of the year.
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
Among the main industrial groups, the producers of intermediates increased their production by 8.9 percent over the previous month following seasonal and calendar adjustment. Production was also positive year on year for the first time since spring 2018, going up by 1.2 percent. Capital goods producers produced 6.5 percent less than in the fourth quarter last year, but 7.3 percent more than in the previous quarter. The production of consumer goods increased by 0.4 percent compared to the third quarter 2020. Compared to the previous year, output was down by 4.2 percent.
Production, manufacturing
110
20 14.1
15 6.6
100
10 5 0
90
-5
-1.9
-10 -15 80 -20 -25 -18.8
70 2016
2017
2018
2019
-30
2020
Change over previous year, two-month-comparison, in percent (right axis) Volume index in manufacturing, two-month-average, seasonally adjusted (left axis) Change over previous quarter (q-o-q), in percent Source: Federal Statistical Office
Towards the end of the year 2020, industry took a big step towards normality. Judging by the positive recent trend in orders, there will not be a noticeable contraction of production at the beginning of 2021, at least on the demand side. Contact restrictions imposed to stop the pandemic are also likely to be eased rather than further tightened. Based on preliminary data, the drop in industrial production for 2020 overall remained in single-digit territory, at 9.9 percent, thanks to the higher number of working days. Calendar adjustment takes the result down to minus 10.7 percent. Among the individual industries, vehicle production was most severely impacted, with minus 23.9 percent in 2020, following minus 11.7 percent in 2019. The sluggish car industry also affected supplier industries. Producers of electrical equipment recorded a drop in production of 6.7 percent. Processors and producers of metal products cut their production by 11.3 percent. Machinery manufacturing was also down by double digits, dropping 12.8 percent, as was textiles and clothing, which declined 12.5 percent. The food industry registered its largest drop in production since reunification, although at minus 2.9 percent this was still much more moderate than in other industries. The chemical industry reduced its output for the third consecutive year, but at minus 0.7 percent production in 2020 was only just below production in 2019. Only two industries increased their production, and that moderately, with pharmaceuticals going up 0.2 percent and the timber industry up 4.4 percent.
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
Production development in the manufacturing industry year on year change in percent 2019 2020 2020 year Q2 Q3 Q4 original value calendar adjusted
compared to previous period in percent 2020 Q2 Q3 Q4 Oct Nov Dec seasonally and calendar adjusted
Production
-3.3
- 7.6
-18.1
- 8.7
-2.3
-15.7
10.1
6.2
3.5
1.5
0.0
Industry
-4.2
- 9.9
-22.2
-10.6
-3.4
-18.8
14.1
6.6
3.7
1.5
0.9
Intermediat goods
-3.6
- 6.1
-17.2
- 7.6
1.2
-16.3
10.3
8.9
4.1
2.6
2.0
Capital goods
0.9
-14.9
-30.6
-15.5
-6.5
-24.6
21.7
7.3
5.5
1.4
-0.5
Consumer goods
-4.7
- 4.4
-10.1
- 4.2
-4.2
- 9.0
5.4
0.4
- 1.6
-0.3
2.6
Energy
-7.2
- 7.2
-13.0
- 4.4
-2.9
-10.8
6,4
4.5
4.9
-2.6
-2.9
Construction industry
3.3
3.3
1.7
- 0.4
3.1
- 3.2
-1.9
4.0
2.0
2.4
-3.2
Construction industry proper
5.9
5.9
3.8
2.9
2.5
- 1.9
- 0.3
0.4
-0.5
2.3
-4.3
Finishing industry
1.0
0.0
- 0.4
- 3.6
3.5
- 4.4
-3.5
7.6
4.4
2.5
-2.2
Sources: Federal Statistical Office, own calculations
Capacity utilisation returning to normal At the start of 2021, industrial capacity utilisation continued to increase. According to figures from the ifo Institute, the capacity utilisation rate of machinery in manufacturing at the beginning of the first quarter was at 81.8 percent. That is 1.7 percentage points higher than in the previous quarter but one percentage point lower than one year ago. Capacities are also being utilised 2.3 percentage points less than on average in the last ten years. Capacity utilisation in manufacturing excluding food increased somewhat more strongly at 1.8 percentage points, but still remained under the ten-year average. Among the individual industries, capacity utilisation increased most in the chemical industry, where at 85.6 percent it reached its highest level since early 2018. Capacity utilisation in the metalworking industry rose to 79.3 percent and in machinery manufacturing to 79.6 percent, both thus well below the respective ten-year average. While capacity utilisation among producers of data processing equipment and optical and electronic devices increased at the beginning of the year to exceed last year’s level, it dropped 1.9 percentage points to 84.4 percent among vehicle producers. The capacity utilisation rate in the furniture industry, in shipbuilding and in pharmaceuticals was slightly above the ten-year average at the start of the year in all cases. In the clothing industry, by contrast, utilisation was 14.7 percentage points below the ten-year average. The trend in vehicle production shows that stepping up production to normal levels does not always go smoothly. According to the ifo economic survey of January this year, companies said that bottlenecks in supplies, in this case of chips, were restricting car production. Companies are also facing increasing
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
commodity prices. The HWWI Commodity Price Index at the end of February was 34 percent higher than one year ago. The price index excluding energy commodities increased by as much as 53 percent in the same period. Compared to the lowest point in April last year, commodity prices (excluding energy) were even 64 percent higher. Sales near last year’s level in fourth quarter Sales in manufacturing continued to recover towards the end of 2020. Year on year, sales in the fourth quarter were only down by 2.2 percent, following a decline of 8.8 percent in the third quarter. Domestic sales dropped 1.9 percent, and therefore not quite as much as foreign sales, which decreased 2.6 percent. While sales were still down 3.6 percent in October year-on-year, the difference had shrunk to 2.3 percent in November and only 0.6 percent in December. For 2020 overall, sales were still down by double digits though only just, at minus 10.1 percent. Domestic sales, at minus 7.5 percent, went down less than foreign sales, which registered a minus of 10.9 percent.
Manufacturing revenue* in 2020
Wood processing
5.9
Food, beverages, tobacco
0.7
Glass, ceramics, stone, industrial minerals
0.3
Chemical industry
-3.0
Electrical and electronic industry
-6.8
Paper
-7.4
Pharmaceuticals
-8.3
Metal production and metalworking sector
-8.9
Machinery manufacturing
-11.0
Other transport equipment production
-11.4
Textiles, fashion, leather
-11.4
Motor vehicle production
-13.0
*Change in percent, year on year Source: Federal Statistical Office
Among the individual industries, the producers of vehicles and vehicle components registered a drop in sales in 2020 of thirteen percent compared to the previous year. Producers of other transport equipment as well as producers of textiles, clothing and leather goods both suffered a 11.4 percent drop in sales. Machinery manufacturers recorded a drop of eleven percent. In metal production and processing, the drop in sales was in the high single digits (down 8.9 percent), as was the drop in sales for pharmaceuticals (down 8.3 percent), and in electricals and electronics (down 6.8 percent). In the chemical industry, sales dropped only moderately, at minus three percent. The producers of non-
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
metallic industrial minerals and food were able to increase their sales year on year by 0.3 percent and 0.7 percent respectively, according to the German Federal Statistical Office, while sales in the woodworking industry even went up by 5.9 percent. Industry recovers thanks to favourable base effect Manufacturing entered the new year with a positive carry-over effect due to the sharp fall in production in spring 2020 followed by the exceptionally strong recovery in the second half of the year. Should production remain at fourth quarter 2020 levels, this would lead to annual output growth of 6.1 percent. The carry-over effect for the production of capital goods is even higher, at 7.7 percent, and for intermediates at 6.8 percent, whereas for less cyclical consumer goods it is much smaller, at 0.6 percent. Statistical effects are only one of the factors indicating that, after ten quarters, industry is emerging from recession. Incoming orders in the fourth quarter 2020 were not just up quarter on quarter but also well over last year’s level for the first time since the middle of 2018. In February, the manufacturing purchasing managers’ index climbed to its highest level in 37 months. At 60.7 points, it is far above the threshold value of 50 index points that indicates expansion. ifo business climate: business confidence on the rise Business sentiment in German industry improved markedly in February 2021. The ifo business climate index climbed up 2.1 index points, which was the highest rise since August 2020. Companies surveyed in January were much more optimistic about both their current situation and business prospects for the next six months. Among the individual sectors, sentiment among service providers rose slightly. They rated current business as somewhat improved and are also more optimistic about the future. The hospitality sector is still in a difficult situation but hopes for a good holiday season have lifted sentiment a little. Business sentiment even improved slightly among wholesalers and retailers, buoyed by increased prospects, although their view of the current situation has deteriorated further following the slump in January. Sentiment also improved in mainstream construction. Although current business was rated as somewhat lower due to the cold weather, construction companies rated their business prospects as improved for the first time in four months. In manufacturing the business climate index climbed 3.2 points which is its biggest rise since last summer. Manufacturers have now rated their current business as better than the previous month for the eighth consecutive time, while prospects for the next six months also improved significantly in the latest survey. Export prospects remain positive, rising for the third time in a row. Since December 2020, the majority of surveyed companies have been optimistic.
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
ifo Business-Cycle Clock German manufacturing*
30
Jan 2011
Business expectations for the next six month
Upswing 20 10
Boom
Jan 2014 February 2021 Jan Jan 2017 2021 Jan 2016 Jan Jan 2015 Jan 2012 2020 Jan Jan 2019 2013
Jan 2010
0 -10
Jan 2018
-20 -30 -40
Jan 2009
-50 Reccession
Downswing
-60 -60
-50
-40
* Balances seasonally adjusted
-30
-20
-10
0
10
20
30
40
50
60
Assesment of current business situation
Source: ifo Institut
Outlook Even though manufacturing activities have hardly been impacted since the beginning of the year, economic output is set to decrease in the first quarter 2021 due to the pandemic-related restrictions, particularly in services. With restrictions expected to be eased and an increasing proportion of the population vaccinated, both the economy and daily life should gradually return to normal from the beginning of spring. A big step forward has been made in digitalisation. The economic dangers linked to closing borders are well known. Policy should tread very carefully here. Germany is an open economy that prospers from global trade and should therefore keep its borders open. As in the second half of last year, foreign trade will make an important contribution to economic recovery in the current year. The strongest growth momentum will come from trade with China. The United States is also likely to expand vigorously on the back of the economic stimulus package that should be passed before the end of March. The GDP forecast for our most important trade partners all point to robust growth which should, in turn, buoy up German exports. We expect the export of goods and services to rise by around six percent in real terms. Imports, too, will rise not only on account of the higher volume of intermediates required but also due to rising consumption expenditure. We anticipate an increase here of 5.5 percent following price adjustment. Overall, net exports would then contribute 0.6 percentage points to GDP growth.
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
Development of exports tot he most important export destinations of Germany 2020 Exports
2021
year on year
in billion euro
Share
in %
BIP forecast in % year on year IMF
EU COM
103.8
-12.5
8.6
5.1
3.7**
China
95.9
- 0.1
8.0
8.1
7.3**
France
91.1
-14.8
7.6
5.5
5.5
Netherlands
84.4
- 8.0
7.0
3.0
1.8
Great Britain
66.9
-15.0
5.6
4.5
3.3**
Poland
64.7
- 1.7
5.4
2.7
3.1
Italy
60.6
-11.1
5.0
3.0
3.4
Austria
59.9
- 9.1
5.0
4.6*
2.0
Switzerland
56.3
- 0.1
4.7
3.6*
Belgium
43.3
- 6.3
3.6
5.4*
3.9
Czech Republic
39.6
-11.7
3.3
5.1*
3.2
Spain
37.5
-15.4
3.1
5.9
5.6
Top 12
803.9
- 9.0
66.9
Euro area
441.0
-11.1
37.0
4.2
3.8
1 205.0
- 9.2
100.0
5.5
5.2***
USA
World *** World without EU
Sources: IMF (January 2021; *October 2020), European Commission (February 2021; ** November 2020)
As restrictions are eased in the further course of the year, we expect employment figures to rise again which will lead to higher incomes. This, in turn, should animate consumption, which will also be boosted by the tax cuts which took effect at the turn of the year as well as the high level of savings accumulated throughout last year. We anticipate that consumption spending of private households will rise by around four percent in real terms. In conjunction with public consumption expenditure, which is set to increase by about one percent, consumption expenditure will be the dominant force driving growth in 2021. Investment activity should also pick up again in 2021. A positive rebound effect in investment in plant and equipment is likely, following the double-digit drop last year. However, the anticipated seven percent rise will not be sufficient to fully compensate last year’s slump as domestic demand for capital goods was not high enough at the end of 2020. Low interest rates will ensure a stable upward path for residential construction which accounts for the lion’s share of construction investment. Investment in
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
commercial buildings is trending slightly downward. Investment in sewerage and similar networks is less sensitive to economic fluctuations. Federal investment in public construction is expected to increase. We are unlikely to see increased investment at the federal state level, on the other hand, and the municipalities, which are responsible for almost 60 percent of total public construction investment, are strapped for funds due to falling trade tax revenues. All in all, construction investment in the current year is only expected to increase by a moderate 0.5 percent. Investment in other assets (software, research and development) should increase by two percent after turning negative last year. Overall, gross fixed capital formation is expected to increase by 2.9 percent and contribute 0.6 percentage points to growth. All in all, gross domestic product should increase 3.5 percent in 2021 in real terms over last year. This forecast assumes that with the start of vaccinations this spring, the restrictions imposed to stop the pandemic will gradually be eased and a third wave avoided. We can nonetheless only expect to return to pre-crisis levels of growth by the second half of the year 2022. BDI forecast for 2021: Change in real economic output over the previous year in percent Actual figures
BDI
Federal Government
European Commission
2020
2021
2021
2021
GDP, real
- 4.9
3.5
3.0
3.5
Consumption
- 3.5
3.1
-
-
- Private Consumption
- 6.1
4.0
3.6
3.6
- Public Consumption
3.3
1.0
1.1
2.0
- 3.1
2.9
3.6
2.8
-12.1
7.0
6.5
7.1
1.9
0.5
1.9
-
- 1.1
2.0
4.1
-
Exports
- 9.4
6.0
6.4
6.2
Imports
- 8.5
5.5
7.2
5.5
Net Exports, Economic Output
- 1.1
0.6
0.1
0.6
Investment - Machinery and Equipment - Construction - Other
Sources: Federal Statistical Office, Federal Government (Januar 2021) European Commission (November 2020), own calculations
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29 10178 Berlin T: +49 30 2028-0 www.bdi.eu Authors Dr. Klaus Günter Deutsch T: +49 30 2028-1591 k.deutsch@bdi.eu Thomas Hüne T: +49 30 2028-1592 t.huene@bdi.eu Editorial/Graphics Marta Gancarek T: +49 30 2028-1588 m.gancarek@bdi.eu
This Quarterly Report Germany is a translation based on „Quartalsbericht Deutschland I / 2021“ as of 05 March 2021.
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Economy set to grow 3.5 percent in 2021| Powerful effect in investment, foreign trade in boosting roles 18/03/2021
Basic data for national accounts GDP (price, seasonally and calendar adjusted) Change over previous period in percent 2019
2020
2019
2020
Q3
Q4
Q1
Q2
Q3
Q4
1.9
-3.5
0.6
0.1
-1.5
-7.2
7.5
-2.5
-Private Consumption
1.6
-6.1
0.3
0.1
-2.3
-11.0
10.8
-3.3
-Public Consumption
2.7
3.3
1.4
0.3
0.5
2.1
0.6
-0.5
2.5
-3.1
-0.1
-0.2
-0.8
-6.6
3.9
1.0
-Machinery and Equipment
0.5
-12.1
-1.4
-2.0
-6.9
-15.1
15.9
-0.1
-Construction
3.8
1.9
0.3
0.4
4.3
-4.3
- 1.3
1.8
-Other
2.7
-1.1
1.2
1.1
-4.1
0.6
1.9
0.6
Domestic Demand
1.2
-4.2
-0.3
0.3
-1.4
-7.1
4.7
-0.3
Exports
1.0
-9.4
1.3
-0.3
-3.3
-20.4
18.0
4.5
Imports
2.6
-8.5
0.0
0.3
-2.0
-15.9
9.0
3.7
Total
0.6
-4.9
0.3
0.0
-2.0
-9.7
8.5
0.3
Consumption
Investment
Contribution to growth (in percentage points) Consumption
1.4
-2.5
0.4
0.1
-1.1
-5.3
5.7
-1.9
-Private Consumption
0.8
-3.2
0.1
0.0
-1.2
-5.7
5.5
-1.8
-Public Consumption
0.5
0.7
0.3
0.1
0.1
0.4
0.1
-0.1
0.5
-0.8
0.0
-0.1
-0.2
-1.5
0.9
0.2
-Machinery and Equipment
0.0
-0.9
-0.1
-0.1
-0.5
-1.0
1.0
0.0
-Construction
0.4
0.2
0.0
0.1
0.5
-0.5
-0.2
0.2
-Other
0.1
0.0
0.1
0.0
-0.2
0.0
0.1
0.0
Change in stocks
-0.7
-0.7
-0.7
0.2
0.0
0.0
-2.0
1.4
Domestic Demand
1.2
-3.9
-0.3
0.2
-1.3
-6.8
4.6
-0.3
-0.6
-1.1
0.6
-0.3
-0.7
-2.9
3.9
0.6
Investment
Net exports Source: Destatis
17