German Economy Continues to Surge Ahead

According to a report released from the German central bank, the economy has been bolstered by such factors low unemployment and a weaker euro. Germany expects GDP growth of 1.7 percent in 2015, 1.8 percent growth in 2016 and 1.5 percent growth for 2017. Imports fell 1.9 percent month-on-month, with the trade surplus increasing to a record 22.3 billion euros.

According to a report released from the German central bank, the economy has been bolstered by such factors low unemployment and a weaker euro. Germany expects GDP growth of 1.7 percent in 2015, 1.8 percent growth in 2016 and 1.5 percent growth for 2017. Imports fell 1.9 percent month-on-month, with the trade surplus increasing to a record 22.3 billion euros.

Germany has been on a winning streak in the past few months, with industrial output beating analyst forecasts, and factory orders came in at 1.4 percent month-on-month in April. April marks the third positive output for the month, and May appears to be going strong.

Germany is Europe’s largest economy and a key exporter within the EU. Exports beat forecasts as well, with seasonal exports climbing 1.9 percent over a previous estimate of 0.1 percent. Analysts also believe that Germany will have a strong second quarter. Business confidence is at an all-time high in May, and unemployment fell to its lowest level in 24 years that same month, coming in at 6.3 percent.

Many businesses are hiring in hopes that the economy will improve going forward, but many in the business community are concerned that higher wage increases is something many companies cannot afford in the future. Many businesses are also worried that the high-wage atmosphere reduces competitiveness. German wages rose exponentially in 2014, but wages are still below 1995 levels when considering inflation. Germany’s higher growth is also attributed to a solid labor market, which has also boosted the housing sector. Despite some complaints from the business community, the benefits of a high-wage atmosphere outweigh the consequences, and higher wages are a key driver behind consumption and economic growth.

The central bank further noted that the economy would grow at an annualized rate of 1.2 percent going forward. This is a vast improvement when considering Germany’s sluggish status in 2014, when its economy was hurt by slower demand from abroad and lagging industrial strength. However, Germany gained headway at the end of the 2014 quarter, surging by 0.7 percent, followed by 0.3 percent growth in the first quarter.

Despite the advances, demand remains weak in the global economy, but this is balanced out by a depreciated euro and economic recovery within the European Union. Further, a rise in U.S. demand is benefiting the German export economy, and this translates into greater growth in the next few months. However, domestic industry needs an uptick, and economists believe that incoming orders need to improve if German GDP is going to remain strong in Q2.