In 2016, the German economy once again confirmed its leading role in the euro area. According to figures published Tuesday, February 14 by the German Federal Institute of Statistics, gross domestic product (GDP) rose by 0.4% in the fourth quarter of 2016 on the other side of the Rhine, a little less than the first estimates. For the whole of 2016, growth was still 1.9%. This is the country’s highest growth rate in five years, after 1.7% in 2015 and 1.6% in 2014. This is also better than in the euro area (1.7% ) or France (1.1%) last year. The gap between the two major economies of the monetary union continues to widen.
“Not surprisingly, internal demand was the main driver of activity,” said Philippe Waechter, chief economist at Natixis AM. Starting with public spending, which rose sharply (+ 4.2% year on year, according to initial estimates), stimulated by the reception of refugees. “From the beginning of 2015, public spending accounted for 0.65% of average growth, which is considerable,” Waechter said.
To help the 1.1 million migrants who arrived in 2015 and 2016, Germany launched a vast renovation of its infrastructure and the construction of new housing. The latter jumped 4.3% last year, while investments increased by 2.5%. “This positive effect on business will be sustainable,” says Waechter. After housing, the integration of refugees will also fuel household consumption, which is now one of the engines of the German economy. In the longer term, the refugees will also help to alleviate the worrying demographic decline on the Rhine.
Foreign trade, Germany’s traditional strong point, has had a slightly negative effect on growth, says Destatis, because of the weakness of world trade. Imports increased slightly more than exports.
According to the European Commission’s new forecasts published on January 13th, its growth is expected to slow somewhat in 2017 to 1.6% before rebounding to 1.8% in 2018. Above all: at 5.9% in January, the unemployment rate across the Rhine is at its lowest level in 27 years. The shortage of labor is beginning to be felt in some sectors. “This fuels rising wages and inflation, widening the gap with the rest of the euro zone ,” said Patrick Artus, Natixis. German public opinion will not fail to care. ”
This is fueling tensions with the European Central Bank (ECB). In January, German inflation was set at 1.9%, according to Destatis, close to the 2% target set by the ECB. This recovery is mainly fueled by the rebound in energy prices. But it is enough to feed the debates in a country where the price increase is not good press.
In fact, many economists in Berlin or Frankfurt believe that the Germanic economy is now strong enough to do without monetary support. Some even fear that the low rates and the buy-backs of public debts practiced by the institution will favor the emergence of bubbles, for example, on the real estate market of the big German cities. But the ECB, which decides its policy according to the average situation of the euro area, has already indicated that it intends to continue its measures at least until December.