The performance of the global economy in recent quarters was not a self-sustaining upswing but was bolstered decisively by government stimulus packages which are now being gradually phased out. In addition, the need for consolidation in the public and private sectors will hamstring growth. Despite ongoing healthy momentum in the emerging markets, these negative factors mean that the global economy is heading for an extended phase with lower growth than before the crisis.
The global backdrop suggests that growth in world trade has started to slow in the second half of 2010. German exports, which were growing at an annual rate of over 20% in the first half of the year, will record only moderate increases in the second half. On the other side, the upswing in Germany has broadened substantially in 2010. All major economic sectors, with the exception of agriculture, are now seeing an increase in value added. This has already had a very positive impact on the labor market. Unemployment has been declining for over a year and since the beginning of 2010 the number of people in work has also been increasing again. “We expect the jobless total to drop below 3 million from October and remain below that threshold until the end of the year. Average unemployment will be below three million in 2011 as well. By the fall of 2011 the jobless total could even fall as low as 2.7 million,” said Heise.
The pickup on the labor market is playing a key role in pushing up private household disposable income which is set to rise by 2.3 percent in 2010 and 2.7 percent in 2011 – after a fall of 1.0 percent in 2009. With inflation low, this means that real incomes will rise by around 1 percent in 2010 and by more than 1 percent in 2011. Together with an expected rise in the propensity to consume on the back of low interest rates and growing consumer confidence, this will probably lead to an increase in real private consumption of 1.3 percent in 2011, the best performance since 2006.
The economists at Allianz believe that the government’s objective to rein in new borrowing back below 3 percent of gross domestic product by 2013 will already be achieved in 2011. Heise: “Given resolute budgetary discipline, it should be possible to generate surpluses in the German budget as early as 2015 even with moderate economic growth.”