QII-2022 QUARTERLY REPORT GERMANY
War and pandemic curbing growth BDI cuts GDP forecast for this year to around 1.5 percent
▪
Real economic output will only increase by around 1.5 percent this year. Economic recovery from the pandemic has been put on hold by the Russian invasion. The BDI had forecast a 3.5 percent rise in GDP at the start of the year. A return to pre-Covid growth levels is not expected before the end of the year at the earliest.
▪
Foreign trade pulling down growth: We predict exports of goods and services to expand by 2.5 percent in real terms. Imports are set to pull ahead and grow 4.5 percent, bolstered by high energy and commodity prices and the pick-up in foreign travel.
▪
Massive uncertainty, even without the war. Supply networks and chains are taut to breaking point. Covid is not over yet and nor are its effects, with China’s failed zero-Covid policy and the prospect of a new virus variant looming in autumn.
▪
Private consumption expenditure will prop up the domestic economy. The positive factors of increased disposable income, benefit payments and surplus savings still outweigh the negative pull of inflation.
▪
Investments on hold as material shortages intensify and uncertainty surrounding the war increases. Factors restraining construction investment are primarily a shortage of material and workers.
War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
Content German economy ................................................................................................................................ 3 German economy starts out year with minimal growth ......................................................................... 3 Foreign trade by country ....................................................................................................................... 4 Labour market: Impact of Covid continuing to ebb off .......................................................................... 6 Incoming orders for industry rise in first quarter 2022 ........................................................................... 7 Industry order backlog at record high .................................................................................................... 8 Industrial production nosediving since mid-March ................................................................................ 8 Industrial capacity utilisation still above average ................................................................................ 10 Real industry sales still below pre-Covid level .................................................................................... 10 Business sentiment brightens, but scepticism looking ahead ............................................................. 11 Outlook ............................................................................................................................................... 12 Imprint ................................................................................................................................................ 15 Basic data for national accounts ..................................................................................................... 16
2
War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
German economy German economy starts out year with minimal growth The German economy managed to start out the year with minimal growth despite the difficult environment, thus warding off a technical recession classified as declining economic output in two successive quarters. Real gross domestic product (GDP) nudged up 0.2 percent in the first quarter 2022 compared to the previous quarter and following seasonal and calendar adjustment. This came after a 0.3 percent drop in GDP in the fourth quarter 2021. Compared to the first quarter 2021, GDP rose 3.8 percent following price and calendar adjustment. This result was nonetheless much lower than the 5.2 percent growth in economic output recorded by the European Union at the beginning of the year. GDP in Spain grew by 6.4 percent, in Italy by 5.8 percent, and in France by 5.3 percent. Spain’s GDP is still 3.4 percent below its level in the fourth quarter 2019, the quarter preceding the outbreak of the pandemic. GDP in Germany and Italy is also still below its pre-pandemic level, short 0.9 percent and 0.4 percent respectively. Economic output was above its pre-Covid level in the first quarter 2022 by one percent in France and by 0.5 percent in the European Union. On the income side of GDP, Germany’s economic output in the first quarter was generated by a workforce of 45.1 million. That is 687,000 or 1.5 percent more than one year ago. The labour volume measured in hours worked increased by 3.3 percent year on year. On account of the fewer number of workers on short-time work, the average number of hours worked per employee was also 1.7 percent higher than one year ago. In the first quarter 2022, gross value added increased by 3.6 percent year on year in real terms. Particularly strong growth was recorded in services. The rise in gross value added in retail, transport and hospitality was especially pronounced, at 8.7 percent. The sharp increase was mainly due to the low base effect caused by the stringent anti-Covid restrictions in place at the beginning of last year. Corporate service providers and other service providers also benefited from the lifting of measures at the beginning of the year and expanded their activity by 7.6 percent and 8.5 percent respectively. Gross value added in construction also increased 2.2 percent year on year despite the hefty price increases. Pulling down growth, on the other hand, was the decrease in gross value added by the production sector, where activity was down by a marginal 0.3 percent. On the expenditure side of GDP, consumption expenditure proved to be the main driver of growth. In the first quarter 2022, private consumption expenditure increased by 8.5 percent compared to the same period last year following price adjustment, reflecting catch-up purchases on a large scale following the easing of restrictions imposed to stem the pandemic. Spending on hotels and restaurants more than doubled in the first quarter 2022. Consumers also spent one quarter more on clothing and shoes, 17.8 percent more on transport and communication, and 17.4 percent more on home furnishings and household goods, all year on year. While expenditure on housing, water, energy and heating rose by more than six percent, spending on food, beverages and tobacco remained almost unchanged (up 0.2 percent). Following two downward quarters, gross fixed capital formation increased by 1.5 percent year on year in the first quarter 2022. In construction investment, residential construction accounted for the
3
War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
most growth, rising by 2.7 percent compared to the previous year. Investment in non-residential construction increased by a less dynamic 1.4 percent. Investment in other assets (patents, licences) was up 1.2 percent. Investment in plant and equipment expanded by a marginal 0.4 percent compared to the previous year. Overall, gross fixed capital formation contributed 1.2 percentage points to GDP growth. Exports of goods and services increased by 2.9 percent in the first quarter 2022 following price adjustment. While goods exports inched up 0.6 percent compared to the previous year, the export of services surged by a powerful 14.2 percent. In the same period, imports expanded 7.2 percent. Imported goods increased 2.7 percent while imported services increased by somewhat more than one fifth. As imports were a lot stronger than exports, net exports were negative, bringing GDP growth down by 1.6 percentage points.
Growth in real GDP in percent 12 10 8 6
2.7
4
1.1
2.9
1.1
2 0 -2 -4 -6
-4.6
-8 -10 -12 I
II
III
IV
I
II
2017
III
IV
2018
change over previous year quarter
I
II
III
2019
IV
I
II
III
IV
I
2020
change over previous quarter
II
III
2021
IV
I
II
III
IV
2022 change over previous year
Source: Federal Statistical Office
Foreign trade by country In the first quarter 2022, the export of goods increased by 37.5 billion euros or 11.3 percent compared to the same period last year, according to figures from the Federal Statistical Office (country-specific seasonally adjusted data is not available). The recovery was propelled above all by trade with the United States. Exports to this country increased by 5.41 billion euros or 18.6 percent. Above-average growth was also recorded in exports to Austria (up 2.84 billion euros or 16.8 percent), to Italy (up 2.56 billion euros or 14.1 percent) and to Poland (up 2.39 billion euros or 12.7 percent). Exports to China grew at a below-average five percent. Trade with the United Kingdom also recovered for the first time in more than two years, not including the technical response in the second quarter 2021. Exports to the United Kingdom rose by 1.5 billion euros or 9.2 percent. Trade only decreased with a very few
4
War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
countries. Exports to Russia, for example, were down by 617 million euros or 10.2 percent in the first quarter, and exports to Vietnam decreased by 17.1 percent or 157 million euros.
German exports and imports in Q1 2022 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 %
USA
34 506
+ 5 415
+
18.6
China
44 964
+ 12 330
+
Austria
19 777
+ 2 840
+
16.8
Norway
11 818
+ 8 976
+ 315.8
Italy
20 699
+ 2 558
+
14.1
Netherlands
30 649
+ 6 811
+
28.6
Netherlands
26 538
+ 2 490
+
10.4
Russia
12 112
+ 4 822
+
66.1
Poland
21 239
+ 2 386
+
12.7
USA
20 083
+ 3 538
+
21.4
Switzerland
17 060
+ 2 289
+
15.5
Belgium
13 557
+ 2 889
+
27.1
France
27 615
+ 2 139
+
8.4
Switzerland
13 880
+ 1 993
+
16.8
Czech Republic
13 401
+ 2 110
+
18.7
Austria
13 042
+ 1 735
+
15.3
Great Britain
17 774
+ 1 504
+
9.2
France
16 796
+ 1 652
+
10.9
Belgium
13 626
+ 1 376
+
11.2
Turkey
5 933
+ 1 581
+
36.3
China
27 502
+ 1 304
+
5.0
Italy
17 123
+ 1 474
+
9.4
Spain
11 817
+ 1 042
+
9.7
Ireland
6 355
+ 1 284
+
25.3
Great Britain
8 876
+ 1 203
+
15.7
Vietnam Russia Total
37.8
757
-
157
-
17.1
Taiwan
3 780
+ 1 203
+
46.7
5 453
-
617
-
10.2
Spain
9 597
+ 1 193
+
14.2
+ 37 535
+
11.3
Total
348 986
+ 68 545
+
24.4
370 796
Sources: Federal Statistical Office, own calculations
German imports increased by a total of 68.5 billion euros or 24.4 percent in the first quarter 2022 compared to the same period last year. The strongest growth in nominal terms was in imports from China (up 12.3 billion euros or 37.8 percent) and the Netherlands (up 6.81 billion euros or 28.6 percent). On account of the soaring prices for fossil fuels, imports also increased from oil and gas supplier countries. Imports from Norway more than quadrupled in nominal terms (up 8.98 billion euros or 316 percent), and from Russia by 4.82 billion euros or 66 percent). Above-average growth was also recorded in imports from some third countries such as Turkey (up 36 percent) and Taiwan
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
(up 47 percent). Double-digit growth was also seen in imports from Germany’s southern neighbours, Austria and Switzerland. Labour market: Impact of Covid continuing to ebb off At the start of spring, the labour market continued its upward trend. According to preliminary data from the German Federal Statistical Office, the number of people in employment rose by 55,000 in April 2022 following seasonal adjustment, after rising by 88,000 in March. Compared to April 2020, the number of people in employment was up by 771,000 or 1.7 percent to 45.38 million, which is 243,000 less than the peak recorded in November 2019. According to the latest figures, employment subject to social security contributions increased even more than the number of people in employment. According to the projections of the Federal Employment Agency, a total of 34.33 million people (most recent figure available) were in employment subject to social security contributions in March 2022. That is 31,000 people more than in February after seasonal adjustment, and 699,000 people more than one year ago. The number of workers in full-time employment subject to social security contributions in March was up by 359,000 or 1.5 percent year on year. The number of workers in part-time employment subject to social security contributions rose by 340,000 or 3.5 percent. German labour market* 4 34 Unemployed persons (right axis) 3
32
2 Employed persons covered by social security (left axis) 1
30 0
28
2014 2012
2015 2013
2016 2014
2017 2015
2018 2016
2019 2017
2020
2021
2 2022
-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
Other forms of employment have stabilized somewhat according to the latest figures. The number of self-employed people including contributing family members recorded did not drop any further in the first quarter 2022 following seasonal adjustment. Compared to the first quarter in the previous year, self-employment was down slightly by 32,000 or 0.8 percent to 3.92 million. The number of people exclusively in marginal employment nudged up in March, rising by 16,000 or 0.4 percent to 4.05 million, according to preliminary figures from the Federal Employment Agency. The number of unemployed people decreased by 427,500 or 15.9 percent to 2.26 million in May (year on year).
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
Following seasonal adjustment, the number of unemployed persons fell by 4,000 in May, after dropping 13,000 in April. The unemployment rate in March 2022 was at five percent as calculated by the Federal Employment Agency, or three percent according to the ILO definition. In March 2022, 553,000 employees were on short-time work. According to these preliminary figures, only 1.6 percent of workers in employment subject to social security contributions were on short-time work in March, down from 8.4 percent one year ago. Incoming orders for industry rise in first quarter 2022 The sharp increase in incoming orders in the first two months of the year paved the way for a positive first-quarter performance despite the war in the Ukraine. New orders for industry increased by 3.1 percent in the first quarter 2022 compared to the same period last year. Quarter on quarter, incoming orders were up 2.6 percent following seasonal and calendar adjustment. New orders, manufacturing 120
75
115
65
110
55
105
45
100
35
95
25
90
15 2.6
1.5
85
5
80
-5 -4.6
75
-5.8
70
-15 -25
65
-35 2018
2019
2020
2021
2022
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
Looking at the origin of new orders in the first quarter 2022, domestic demand continued its upward trend, rising 1.1 percent compared to the same period last year. Compared to the fourth quarter 2021, however, new orders decreased following calendar and seasonal adjustment. In the first quarter, foreign orders were up by 4.5 percent year on year, and as much as 5.6 percent quarter on quarter. Demand from third countries increased by 5.8 percent year on year, performing markedly better than those from within the euro area (up 2.4 percent). Among the main groups of industrial goods, demand for intermediates continued the weak trend seen at the beginning of the year. In the first quarter 2022, producers of intermediates received 0.2 percent
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
less orders than in the previous quarter. This was the third quarter of the downward trend here. Year on year, orders for intermediates was also down, with both domestic and foreign demand diminishing on a similar scale. The demand for capital goods picked up again in the first quarter 2022. New orders were up five percent compared to the fourth quarter 2021, after dropping 7.4 percent in the previous quarter. Compared to the first quarter last year, orders were up 5.2 percent. Capital goods producers received the most momentum from abroad, with foreign demand up 6.4 percent year on year. Domestic demand, on the other hand, only increased by 2.9 percent. Among consumer goods producers, new orders continued their robust upward path. In the first quarter 2022, new orders were up by 3.3 percent on the previous quarter following seasonal and calendar adjustment. Year on year, orders expanded by as much as 13.3 percent. This is the second highest growth recorded since these data series began in 1991. Domestic demand, up 15.4 percent, was much stronger than foreign demand which increased 9.6 percent. The most recent figures show a continuation of the downward trend that set in at the end of the first quarter. In April 2022, incoming orders for German industry dropped 2.7 percent compared to March following price, calendar and seasonal adjustment and according to provisional figures. Excluding large orders, the decrease was slightly less pronounced at minus 1.2 percent. Compared to April 2021, new orders were down substantially at minus 6.2 percent. Industry order backlog at record high As supply bottlenecks are still hampering production, companies have not been unable to complete their new orders. Order backlogs have consequently soared. According to figures from the ifo Institute, the reach of orders in hand in manufacturing hit a new record high for the fourth consecutive time at the beginning of the second quarter 2022, rising to 4.5 production months. Among producers of intermediates, the order backlog grew to 3.8 production months. Capital goods producers now need 6.5 months to complete all their orders, which is two months more than one year ago. Consumer goods producers increased their order backlog only moderately to 2.3 production months. According to figures from the German Federal Statistical Office, the orders in hand for manufacturing reached a new record high in March 2022 for the second consecutive time. Unfinished orders from at home increased by 1.2 percent compared to the previous month and unfinished orders from abroad 0.3 percent. The order backlog was thus, after more than two years of the pandemic, 29.3 percent higher than before restrictions were imposed in February 2020. The second quarter has, as anticipated, not been a success. If the order situation stays put until the middle of 2022 this would correspond to a negative quarterly performance of more than seven percent year on year. The order books of industry are still full up which should safeguard production levels for the next few months. However, the problem is not in demand but rather in the shortage of inputs and intermediates. Industrial production nosediving since mid-March In April 2022, industrial production inched up 0.4 percent over the previous month following seasonal and calendar adjustment. Year on year, production was down by a substantial 3.4 percent. The energy
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
industry increased its production by 16.1 percent compared to March. The reason behind these strong rates of change were fluctuations in the energy production from wind power. Production in construction decreased by 2.1 percent compared to the previous month. Overall, total output of the production sector was 0.7 percent higher than in March. After a revision of the preliminary March data, industrial production in the first quarter 2022 was 0.6 percent higher than in the previous quarter following seasonal and calendar adjustment. Compared to the first quarter 2021, however, production dropped 0.8 percent, its second consecutive fall. Production development in the manufacturing industry year on year change in percent 2020 2021 2021 2022 year Q3 Q4 Q1 original value calendar adjusted
compared to previous period in percent 2021 2022 Q3 Q4 Q1 Feb Mar Apr seasonally and calendar adjusted
Production
-7.3
3.2
2.2
-2.0
0.2
-2.1
1.3
1.0
0.1
-3.7
0.7
Industry
-9.6
4.3
2.5
-1.6
-0.8
-2.1
1.5
0.6
0.2
-4.0
0.4
Intermediat goods
-6.1
7.7
7.9
0.2
-0.8
-2.3
-0.2
0.8
0.5
-3.4
0.4
-14.6
1.8
-2.7
- 5.1
-4.4
-3.4
3.6
-1.1
-1.9
-5.8
0.9
Consumer goods
-3.7
2.7
3.6
3.1
7.6
1.5
0.2
4.7
4.4
-0.9
-1.3
Energy
-6.1
2.7
2.2
2.0
1.8
-1.3
2.4
-1.8
4.1
-10.8
16.1
Construction industry
4.2
-1.2
0.7
-4.5
5.4
-2.1
0.0
3.6
-1.3
-0.1
-2.1
Construction industry proper
5.4
0.9
1.0
1.7
8.8
-1.3
1.1
4.3
0.5
0.8
-6.1
Finishing industry
3.1
-3.3
0.4
-9.1
1.9
-2.8
-1.1
2.9
-3.1
-1.0
2.0
Capital goods
Sources: Federal Statistical Office, own calculations
Among the main industrial groups, producers of intermediates expanded production by a marginal 0.8 percent compared to the previous quarter and following seasonal and calendar adjustment, but production was slightly down on the same quarter last year (down 0.8 percent). Capital goods producers struggled with supply and material shortages, producing 1.1 percent less than in the previous quarter. Year on year, production dropped by a much more pronounced 4.4 percent following calendar adjustment. Going the other way, consumer goods producers were on a roll. They produced 4.7 percent more than in the previous quarter and 7.6 percent more than in the first quarter last year. The latest figures show industrial production on a clear decline. Alongside the Ukraine war, industry will also still be feeling the effects of the lockdown in Shanghai over the next few months. A positive factor remains the persistently high order backlogs of industry and the slight brightening of business sentiment and the purchasing managers’ index. Based on the estimates of the individual industries, we expect industrial production to increase by two percent this year. This forecast is based on the assumption that supply bottlenecks will be resolved in the second half of the year and that the energy supply remains secure.
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
Production, manufacturing 110
40 30
100
20 10 1.5
90
0.6 0
-2.1
-2.2 -10
80
-20 70
-30 2018
2019
2020
2021
2022
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
Industrial capacity utilisation still above average The war in Ukraine has so far not led to a significant turndown in production. In the manufacturing sector, capacity utilisation dropped slightly in the second quarter 2022, slipping down 0.2 percentage points to 85.5 percent. Capacity utilisation is thus still higher than on average over the last ten years. The capacity utilisation rate in manufacturing excluding food dropped by 0.3 percentage points in the same period but was still 1.3 percentage points above the ten-year average. The picture was mixed among the individual industries. Among the producers of electrical equipment, capacity utilisation was 4.7 percentage points higher than on average over the last ten years. Among producers of data processing equipment, capacity utilisation was 2.5 percentage points higher than the ten-year average. Capacity utilisation remained above average in machinery manufacturing (up 2.1 percentage points) and among producers of metal products (up 3.1 percentage points). In the pharmaceutical industry, capacities at last count were 4.6 percentage points less utilised than the longterm average. In vehicle production and in textiles, the capacity utilisation of facilities were 3.5 percentage points below their ten-year average in both cases. In the chemical industry it was still 2.4 percentage points lower than the long-term average. Real industry sales still below pre-Covid level In the first quarter of the year, sales in the manufacturing sector following price adjustment were up by a slim 0.7 percent compared to the fourth quarter 2021. Year on year, sales were up by 0.4 percent. Looking at the origin of sales, momentum diverged. While sales from at home increased by 1.5 percent compared to the previous year, sales from abroad shrank 0.7 percent. Compared to the fourth quarter 2019, the last quarter before the outbreak of the pandemic, sales were down 2.2 percent. Domestic sales were down by 1.8 percent and foreign sales by 2.7 percent. Sales generated within the euro area
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
were 6.4 percent below their pre-Covid level. Sales in third countries, in contrast, were back to their pre-pandemic level.
Manufacturing revenue* from January till March 2022 Wood processing
35.2
Paper and pape
30.3
Chemical industry
25.5
Metal production and metalworking sector
22.7
Print industry
19.3
Pharmaceuticals
18.9
Glass, ceramics, stone, industrial minerals
17.6
Textiles, fasion, leather
13.9
Manufacturing
13.8
Food, beverages, tobacco
12.1
Electronic industry
11.3
Machinery manufacturing
7.9 0.8
Motor vehicle production Other transport equipment production
-0.6
*Change in percent, year on year Source: Federal Statistical Office
Among the individual industries, the strongest growth in nominal sales in the first quarter of the year was recorded by the timber processing industry with an increase of 35.2 percent year on year. In the same period, sales in the chemical industry rose by 25.5 percent on the back of the strongly increased commodity prices. This was the best quarterly performance with sales of more than 49 billion euros despite production levels slipping somewhat in real terms. The same applies to metal production and metalworking enterprises whose sales also showed large growth, rising by 22.7 percent despite decreased production. In machinery manufacturing, production dropped slightly compared to the same period last year. Sales nonetheless expanded by a nominal 7.9 percent. Even in vehicle production, where production in the first quarter had suffered a big 13.8 percent cut, sales increased by a marginal 0.8 percent. Sales of other transport equipment dropped slightly although production here had increased in the first quarter. Business sentiment brightens, but scepticism looking ahead In the last two months, the ifo business climate index for Germany recovered somewhat following the slump induced by the war in March. In both April and May, companies rated their current situation as better than in the previous month. Business prospects for the next six months also improved slightly although most companies remain sceptical about the future. Among the individual sectors, service providers were substantially more satisfied with current business. The improvement in current business was the second largest increase since the data series started in 2005. Prospects going forward recorded a clear downturn. Transport and logistics companies are particularly troubled. Among wholesalers and retailers, the business climate improved for the first time since the outbreak of the war in Ukraine with companies
11
War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
surveyed not just more satisfied with current business but also slightly more optimistic about their expectations for the next six months. In mainstream construction, the business climate index recovered slightly following a double dip. Companies were markedly more optimistic about the next six months, the increase in optimism the most pronounced ever recorded. Construction companies were also slightly more pleased with current business, but most remained pessimistic. In the manufacturing sector, business sentiment improved tangibly. For the first time since the outbreak of the war in Ukraine, industrial companies feel better both about their current business and about their prospects for the next six months. However, most are still sceptical looking forward. The export prospects of industry improved slightly with the majority of companies rating them as positive in the last two months.
ifo Business-Cycle Clock German manufacturing*
30 Boom
Business expectations for the next six month
Upswing Jan 2021
20 10
Jan 2018
Jan 2022 Jan 2017
0 Jan 2020 -10
Jan 2019 May 2022
-20 -30 -40 -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 The technical recession feared in Germany at the start of the year has so far not come about. The reason for this is the robust recovery in those areas of the service sector that were still strongly affected by the Covid restrictions this time last year. The manufacturing sector, however, is struggling to deal with the consequences of the pandemic. Material and supply bottlenecks have continued to intensify in the last few months and there is no sign of the situation easing up any time soon. The war in Ukraine will continue to cause problems in the supply chains of German industry for the foreseeable future. German foreign trade is being affected considerably by the current shortages in supplies. This is the main reason why foreign trade failed to contribute to growth in the first quarter of the year. The aftereffects of the lockdowns in China that have since been lifted will probably still be felt into the summer
12
War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
months. The uncertainty created by the outbreak of the war in Ukraine is also weighing heavily on trade. In view of the weak performance in the first half of the year, exports of goods and services are unlikely to expand by more than 2.5 percent in real terms for 2022 overall. On the import side, this should lead to less intermediates being purchased. However, the strong increase in prices for energy and non-energy commodities will lead to a substantial deterioration in the terms of trade and will drive the cost of imports up considerably. The import of services is expected to grow strongly this year as travel picks up again. All in all, imports are expected to grow by 4.5 percent in price-adjusted terms, thus clearly outperforming exports. Net exports will thus have a negative impact on GDP, weighing it down by 0.5 percentage points.
BIP forecast for 2022: Change in real economic output over the previous year in percent
2022
Federal Government 2022
European Commission 2022
GDP, real
1.5
2.2
1.6
Consumption
2.6
-
-
- Private Consumption
3.5
3.7*
4.1
- Public Consumption
0.5
-0.1
0.5
0.5
3.4
0.8
- Machinery and Equipment
0.5
6.0
-
- Construction
0.0
1.7
-
- Other
2.0
4.3
-
Exports
2.5
4.2
2.4
Imports
4.5
5.5
4.1
-0.6
-0.3
-0.6
BDI
Investment
Net Exports, Economic Output
Sources: Federal Government (April 2022; *Private households and private non-profit institutions serving households), European Commission (May 2022), own calculations
The lifting of protection measures to combat the pandemic gave a boost to private consumption at the beginning of the year. High-contact services benefited particularly in the first quarter. The increased number of employees, the aid packages to compensate for the increased energy prices and the adjustment of pensions in the middle of the year should be sufficient to stabilise private consumer demand. Even if only one quarter of the savings accumulated during the pandemic is spent on consumption it would lift growth in private consumption by more than two percentage points. Despite the recent high price increases, which will weigh down consumption in real terms, private consumption expenditure is set to grow by 3.5 percent. Regarding public consumption
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
expenditure, the federal government expenditure for the support of refuges from Ukraine and for support measures to compensate citizens for war-related burdens is set to increase public consumption expenditure further. We forecast an increase here to the scale of 0.5 percent. Despite the high volume of investment needed to bring about the digital and energy transformation, investment activity is heading for only moderate growth this year. The main factors curbing investment are the uncertainties that have increased on account of the war in Ukraine. At the same time, additional investment would not be able to contribute to expanding production given the current shortages in materials. Growth momentum from plant and equipment investment is therefore likely to be low. In the case of construction investment, we expect levels to stagnate this year with increasing material shortages keeping investment down. The planned residential construction projects will not be affected by the interest rate turnaround yet this year. However, price increases are weighing down on investments in public construction and the rise in building permits for commercial construction is purely fuelled by prices and has actually dropped off in real terms. Investment in other assets (software, research and development) has expanded by more than one percent already since the beginning of the year and should continue to recover in the further course of the year and grow by around two percent overall compared to last year. All in all, we expect Germany’s gross domestic product in the current year to increase by 1.5 percent in real terms compared to last year. Our forecast is based on the assumption that Russia’s war in Ukraine will not escalate further, and that the energy supply remains secure. GDP is not likely to regain its pre-Covid level until the end of 2022.
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29 10178 Berlin T: +49 30 2028-0 www.bdi.eu German Lobbyregister Number R000534 Author Thomas Hüne T: +49 30 2028-1592 t.huene@bdi.eu Editorial / Graphics Dr. Klaus Günter Deutsch T: +49 30 2028-1591 k.deutsch@bdi.eu Marta Gancarek T: +49 30 2028-1588 m.gancarek@bdi.eu
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War and pandemic curbing growth | BDI cuts GDP forecast for this year to around 1.5 percent 4/07/2022
Basic data for national accounts GDP (price, seasonally and calendar adjusted) Change over previous period in percent 2021 2020
2022
2021
Q1
Q2
Q3
Q4
Q1
-3.2
1.1
-3.9
4.2
3.3
-0.9
-0.1
-Private Consumption
-5.9
0.3
-5.4
3.9
6.3
-1.3
-0.1
-Public Consumption
3.5
2.9
-0.7
4.9
-3.1
0.2
0.1
-2.2
1.1
-0.7
1.2
-2.9
0.0
2.7
2.5
0.0
-0.1
1.6
-3.6
-1.0
4.6
-11.2
3.3
-0.4
0.6
-3.9
0.7
2.5
1.0
0.7
-2.6
1.1
0.9
1.3
-2.1
Domestic Demand
-4.0
2.3
-0.9
2.6
1.9
-0.5
1.8
Exports
-9.3
9.6
1.8
1.7
-0.6
3.8
-2.1
Imports
-8.6
9.1
4.4
2.5
-0.4
4.1
0.9
Total
-4.6
2.9
-1.7
2.2
1.7
-0.3
0.2
Consumption
Investment -Machinery and Equipment -Construction -Other
Contribution to growth (in percentage points) Consumption
-2.3
0.8
-4.3
4.8
1.3
1.9
4.4
-Private Consumption
-3.0
0.2
-4.8
3.3
0.9
1.6
4.0
-Public Consumption
0.7
0.7
0.5
1.5
0.5
0.2
0.4
-0.5
0.3
-0.2
1.9
0.0
-0.5
0.3
0.3
0.0
-0.2
0.6
0.1
-0.3
0.2
-0.8
0.2
0.0
1.3
-0.1
-0.2
0.0
0.0
0.0
-0.1
0.1
0.0
0.0
0.0
Change in stocks
-0.9
1.1
0.5
0.2
1.9
1.6
0.9
Domestic Demand
-3.7
2.1
-4.1
7.0
3.2
3.0
5.6
Net exports
-0.8
0.8
1.0
3.8
-0.4
-1.1
-1.6
Investment -Machinery and Equipment -Construction -Other
Source: Federal Statistical Office
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