Germany: Signs of Recovery Mount as Merkel Wins Third Term

Consensus_Forecasts

Aided by near record-low unemployment and her tough stance defending Germany’s interests during the Euro area crisis, Chancellor Angela Merkel secured a resounding victory in last month’s elections. However, her centre-right party still requires a coalition partner in order to govern. As political discussions progress, latest indicators suggest that the economy is benefiting from the Euro zone’s fledgling recovery. Industrial production rebounded by 1.4% (m-o-m) in August, confirming that earlier weakness stemming from an extended winter has now been overcome. The PMI for manufacturing did edge down slightly to 51.5 in September, even though it remained above the growth threshold of 50 for a third successive month. While the sector likely contributed positively to Q3 activity, our panel’s 2013 production forecast has dropped to 0.0% this month. Meanwhile, GDP prospects received a boost after the IFO business climate index rose to a 17-month high of 107.7 in September, buoyed by an upturn in sentiment for the retail industry. Domestic demand remains bolstered by a solid labour market and above-inflation wage growth. Indeed, retail sales advanced by 0.5% (m-o-m) in August following declines in June and July. While the unemployment rate unexpectedly climbed to 6.9% in September, this uptick was attributed to a shift in labour policies rather than deteriorating fundamentals. However, exports – the cornerstone of German growth – continued to undershoot expectations in August, increasing by just 1.0% (m-o-m) after a surprise fall in July.

Inflation moderated to 1.4% (y-o-y) in September, further supporting consumption and enabling the ECB to continue with its aggressively loose monetary policy.

You can download a sample of Consensus Forecasts G-7 and Western Europe at www.consensuseconomics.com.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s