The export engine, which had spluttered intermittently, is purring again in 2017. The economists at Allianz expect real exports to increase by 4% in 2017, with Germany more or less maintaining its share of world trade. The outlook for 2018 is pretty much the same, with real exports expected to grow by just under 4%.
Since 2008 the German economy has largely been driven by private and public consumption. Over the same period, investment has contributed practically nothing to growth. But this year the prospects are good that both construction and equipment investment will provide a substantial boost to growth. Rising capacity utilization, the healthy liquidity situation of companies along with favorable financing conditions should at last give a lift to machinery and equipment investment.
In price-adjusted terms, German gross domestic product looks set to grow by 2.0% in 2017 (in working-day adjusted terms by as much as 2.2%), thus slightly topping the growth rates of 1.7% to 1.9% seen in the last three years. Heise: “Looking ahead to 2018, economic momentum is likely to continue broadly unchanged. Real private consumption is likely to rise somewhat less strongly than in 2017 given slightly lower real earnings growth. But the average real increase in machinery and equipment investment is likely to double in 2018. We see real GDP growth of 2.0% next year.”
Inflation in Germany remains subdued. Despite healthy business activity and low unemployment there is no sign of a pickup in inflation. The Phillips curve connection, which captures the negative correlation between unemployment and inflation, is of no notable relevance for Germany at present.
Germany’s high current surplus is the result of an excess of savings over net domestic investment. The huge financial surplus of non-financial corporations is of particular significance. Whereas back in the 1990s hefty deficits were the rule, since 2009 firms have been recording large and rising financial surpluses. Firms are evidently investing too little domestically, probably unsettled by the many economic and political uncertainties. However, the moderate economic upswing of the last few years may also have necessitated only a small expansion of capacity.