Across the board the latest indicators for Germany are signaling that the economy got off to an extremely good start to 2006. The upswing is now also being driven by machinery and equipment investment. Private consumption should gather momentum in the course of the year, but will fall appreciably in 2007 due to the VAT increase.
Economic forecast 2006/2007
In 2006 private consumption will be buoyed above all by the pickup in employment. Disposable income is set to rise by 2.3 %. Machinery and equipment investment has gathered further momentum. This should continue in 2006 with an increase of 6.5 % (2005: 4.0 %).
Exports are still the mainstay of German economic growth. Germany’s competitive position continues to benefit from the favorable trend in domestic unit wage costs and ongoing buoyant world trade. Following export growth of 6.3 % last year, we expect export growth to accelerate to 7 %. We expect inflation to average 1.7 % this year (after 2.0 % in 2005), picking up to 2.6 % in 2007.
On the labor market employment subject to social insurance has now stabilized. On the back of the pickup in the economy, the labor market should finally turn the corner this year. On average we expect employment to rise by 0.5 %, in line with some 200,000 additional jobs. Over the course of the year we expect the seasonally adjusted jobless total to fall by around 200,000 to some 4.5 million. At the end of the year the unemployment ratio is set to dip back below 11 % for the first time since the introduction of the Hartz-IV reforms.