The world economy is humming in 2006. With global output set to rise by 3.5 percent, 2006 will be one of the strongest years in recent decades, according to the economists. Despite the slowdown forecast for 2007 in the industrial countries, and particularly in the USA, we still expect the global backdrop to be benign, with growth of 2.9 percent. For the euro area we expect solid growth of 2.0 percent after 2.6 percent this year.
Germany set to remain on growth track in 2007
The economic upswing in Germany gathered considerable steam during the first half of 2006, and gained a much broader footing. The annualized growth rate in the first two quarters of the year was the highest for five years. Alongside exports, the driving force this year will be machinery and equipment investment which has taken off. The ongoing expansion in industry - the main engine driving the overall economy - is continuing, buoyed by a still lively order intake. Even the construction industry has now bounced back strongly.
After a pronounced slump in consumption over the last four years, private consumption demand in 2006 will again make a positive contribution, rising by around 1 percent. The pickup in employment will provide a positive boost. Employment has been rising steadily since the beginning of the year and in the summer was almost 1 percent up on a year earlier. Having fallen by 0.2 percent in 2005, the number of people in work will be 0.6 percent higher on average in 2006. Above all, the 0.5 percent increase in the number of jobs liable to social insurance (compared with a drop of 1.2 percent in 2005) will help boost earnings growth again this year for the first time in ages. And in 2007 as well the we are also forecasting a positive impetus from an ongoing upward trend in employment. Although the rise in employment will slow in the course of the year, with an expected average increase of 0.6 percent it will be on a par with this year.
Inflation will pick up sharply in early 2007 due to the hike in value added tax (and insurance tax). This alone is expected to add around 1 percentage point to the inflation rate. Due to the weaker economy and, above all, the easing in the oil price, inflation will tend downwards in the course of 2007. After 1.7 percent this year we expect average inflation to pick up to 2.3 percent in 2007.