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  • 1 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Germanys Economic Outlook

    Chewing gum cycle, bubble gum risks

    IHS Markit | Frankfurt/Main, 25th January 2017 New Years Briefing 2017

    Stefan Kooths Forecasting Center

  • 2 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Chewing gum-type business cycle

    Stretched upswing, faint cyclical pattern

    Migration feeds markedly into potential growth (delayed for refugees) 2015: + 331,000

    2016: + 511,000

    2017: + 313,000

    2018: + 213,000

    Capacities already slightly over-utilized

    -5

    -4

    -3

    -2

    -1

    0

    1

    2

    3

    4

    5

    1900

    2100

    2300

    2500

    2700

    2900

    3100

    1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

    Output gap (rhs) GDP Potential output

    Annual data; GDP, Potential output: price adjusted (chained volumes, reference year 2010).

    Bn. Euro Percent

    Production and potential output

    fore

    ca

    st

  • 3 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Capacity utilization above normal and increasing

    Manufacturing Upward trend, third year of

    over-utilization

    incoming orders exceed production capacities

    Construction Record-high capacity

    utilization

    Services Lack of demand (ifo) on

    record-low levels

    Vibrant labor market

    -10

    -8

    -6

    -4

    -2

    0

    2

    4

    6

    8

    10

    79

    80

    81

    82

    83

    84

    85

    86

    87

    88

    I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

    2011 2012 2013 2014 2015 2016

    Order-capacity-index(rhs)

    Capacity utilization

    Quarterly data, seasonally adjusted; Capacity utilization: axes cross at normal capacity utilization level.

    Percent Percent

    Capacity utilization in manufacturing

  • 4 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Data edge: High momentum

    ifo climate brightened up Situation: 4-years high

    Expectations: Pronounced improvement since August

    Incoming orders on the rise

    Industrial production: upward trend since 2012

    2017: Dampening working-day effect (0.3 ppt)

    -0,6

    -0,4

    -0,2

    0,0

    0,2

    0,4

    0,6

    0,8

    1,0

    102

    104

    106

    108

    110

    112

    114

    116

    I II III IV I II III IV I II III IV I II III IV I II III IV

    2014 2015 2016 2017 2018

    qoq-change (rhs) level

    Gross domestic product

    Percent

    1,6 1,7 1,9 1,7 2,0

    2010 = 100

    Volumes.Quarterly data: seasonally and working-day adjusted.

  • 5 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Booming construction sector

    Record-high capacity utilization

    Swelling order books Total: + 21 % (Q3, y-o-y)

    Dwellings: Second year of two-digit rates

    Price pressure Value added: > 5 percent

    (two years in a row)

    Real estate transactions (vdp)

    2014: + 3.1 %

    2015: + 4.5 %

    2016: + 5.8 % (Q1 to Q3)

    60

    62

    64

    66

    68

    70

    72

    74

    76

    78

    80

    75

    95

    115

    135

    155

    175

    195

    215

    235

    I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

    2011 2012 2013 2014 2015 2016

    capacity utilization (rhs) Total

    Buildings Underground

    Dwellings

    Quarterly data. Capacity utilization: seasonally adjusted;

    Order stocks: price, seasonally and w orking-day adjusted.

    2010=100 Percent

    Order stocks and capacity utilization in construction industry

  • 6 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Stimulating environment for construction spending

    Driving force: housing Mortgage interest rates at

    record-low levels

    Dynamic labor market

    High government revenues

    Growth contributions 2016: 0.3 ppt

    2017: 0.3 ppt

    2018: 0.4 ppt -6,0

    -4,0

    -2,0

    0,0

    2,0

    4,0

    6,0

    105

    107

    109

    111

    113

    115

    117

    119

    121

    123

    125

    I II III IV I II III IV I II III IV I II III IV I II III IV

    2014 2015 2016 2017 2018

    qoq-change (rhs) level

    Constructions

    Percent

    1,9 0,3 2,8 3,1 3,9

    2010 = 100

    Volumes.Quarterly data: seasonally and working-day adjusted.

  • 7 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    GFCF: Stretched upswing, small accelerator effects

    Flat cyclical pattern

    Gross fixed capital formation gradually gaining momentum

    -6

    -4

    -2

    0

    2

    4

    6

    -25

    -20

    -15

    -10

    -5

    0

    5

    10

    15

    20

    25

    1991 1995 1999 2003 2007 2011 2015

    Output gap (rhs) GFCF Machinery and equipment

    Annual data. GFCF, machinery and equipment: volumes, change on previous year;

    Output gap: in percent of potential output.

    Percent Percent

    fore

    ca

    st

    Investment cycles

  • 8 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    -7,0

    -5,0

    -3,0

    -1,0

    1,0

    3,0

    5,0

    100

    105

    110

    115

    120

    125

    I II III IV I II III IV I II III IV I II III IV I II III IV

    2014 2015 2016 2017 2018

    qoq-change (rhs) level

    M&E Investments

    Percent

    5,5 3,7 1,3 1,8 4,8

    2010 = 100

    Quarterly data, price, seasonally and calendar adjusted, qoq-change.

    Dampened dynamics in M&E spending

    2017 (yoy) Carry-over effect (- 0.5 ppt) Working-day effect (- 0.8 ppt)

    2018 Topping pre-crisis level

    Weak dynamics compared to historical standards

    Financing conditions Record-low credit costs Hardly any credit hurdles

    Low market uncertainty, but increased policy uncertainty

    Harbinger of demographics?

    Pre-crisis peak

  • 9 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Exports back on track

    Recovered incoming orders

    German export markets Lower uncertainty

    Improved business climate

    Export market growth 2016: + 2.1 percent

    2017: + 2.2 percent

    2018: + 2.4 percent

    Risks Brexit

    Neo-protectionism (US: micro-interventionism?)

    -1,5

    -1,0

    -0,5

    0,0

    0,5

    1,0

    1,5

    2,0

    2,5

    100

    105

    110

    115

    120

    125

    130

    135

    140

    145

    I II III IV I II III IV I II III IV I II III IV I II III IV

    2014 2015 2016 2017 2018

    qoq-change (rhs) level

    Exports

    Percent

    4,1 5,2 2,5 3,6 5,2

    2010 = 100

    Volumes.Quarterly data: seasonally and working-day adjusted.

  • 10 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Brexit: Impact on German growth

    Country-specific export function UK-GDP

    Exchange rate GBP/EUR

    UK-GDP [autumn forecast] 2016: + 2.0 % [+ 1.6 %]

    2017: + 1.2 % [+ 0.6 %]

    2018: + 1.6 % [+ 1.6 %]

    More pronounced devaluation of the British pound: 8 + 3.5 percent

    Impact on exports in the UK (cumulated)

    2016: 2.2 %

    2017: 8.2 %

    2018: 10.0 %

    Impact on GDP (cumulated): < 0.5 %

  • 11 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Higher oil prices weigh on purchasing power

    -0,8

    -0,3

    0,2

    0,7

    1,2

    100

    101

    102

    103

    104

    105

    106

    107

    108

    109

    110

    111

    112

    113

    114

    I II III IV I II III IV I II III IV I II III IV I II III IV

    2014 2015 2016 2017 2018

    qoq-change (rhs) level

    Private consumption

    Percent

    0,9 2,0 1,9 1,5 1,5

    2010 = 100

    Volumes.Quarterly data: seasonally and working-day adjusted.

    -2

    -1

    0

    1

    2

    3

    4

    2015 2016 2017 2018

    -2

    -1

    0

    1

    2

    3

    4

    Savings rate Deflator

    Disposable income Private consumption (rhs)

    Percentage pts.

    Contributions to change in private consumption

    Annual data.Disposable income including change in pension entitlements.

  • 12 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Internal and external driving forces

    2015/2016: strongest increase in consumption in 15 years

    Gradually growing investment pillar

    Exports recovering

    -2,0

    -1,0

    0,0

    1,0

    2,0

    3,0

    4,0

    -2,0

    -1,0

    0,0

    1,0

    2,0

    3,0

    4,0

    2014 2015 2016 2017 2018

    Consumption GFCF External trade Inventories

    Annual data; price-adjusted, Lundberg components.

    forecast

    Percentage pts.

    Expenditure-side components to GDP-growth

  • 13 KOOTHS | Germanys Economic Outlook: Chewing gum cycle, bubble gum risks

    Labor market regains momentum

    Supportive effective wages (hourly) 2016: + 2.6 %

    2017: + 3.1 %

    2018: + 3.0 %

    Registered unemployment [vs. ILO rate] 2016: 6.1 % [4.0 %]

    2017: 5.9 % [3.7 %]

    2018: 5.6 % [3.1 %]

    -50

    0

    50

    100