Germany Economic Forecast
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Following a rapid recovery from the 2008-09 recession (GDP growth rates of 4.024 percent and 3.096 percent in 2010 and 2011 respectively), German economic growth has slowed significantly as a result of substantial deterioration of world trade growth and a loss of confidence due to the euro area debt crisis.
In 2012, the German economy grew by just 0.865 percent, while the latest forecast in June predicted that the economy would post just a 0.3 percent growth rate (constant prices, national currency) this year – down from an April forecast of 0.613 percent.
Following a rapid recovery from the 2008-09 recession (GDP growth rates of 4.024 percent and 3.096 percent in 2010 and 2011 respectively), German economic growth has slowed significantly as a result of substantial deterioration of world trade growth and a loss of confidence due to the euro area debt crisis.
In 2012, the German economy grew by just 0.865 percent, while the latest forecast in June predicted that the economy would post just a 0.3 percent growth rate (constant prices, national currency) this year – down from an April forecast of 0.613 percent.
The longer it takes for the eurozone to recover, the more it will affect the German economy, as its industry will find it difficult to export and its labour market will have less jobs for all the available work force.
Additionally, like its Western European neighbours, Germany faces significant demographic challenges to sustained long-term growth. Low fertility rate and declining net immigration are increasing pressure on its social welfare system, necessitating new structural reforms.
Current projections for the economy are also characterised by a high degree of uncertainty. If the eurozone can recover quicker from its current crisis, it is entirely foreseeable that the German economy, in view of its sound underlying health, would be able to utilise the additional growth opportunities that arise.
Downside risks nonetheless predominate. Should global economic growth remain below expectations or the debt crisis escalate further in some countries, it is probable that the German economy may follow a weaker course than the one assumed in the baseline scenario.
As for now, German GDP growth (constant prices, national currency) is expected at 1.455 percent in 2014, averaging 1.288 percent in the four years afterwards.
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Germany’s GDP Forecast
Germany is the 4th largest economy in the world going by GDP (current prices, US dollars) and the 5th largest according to GDP (PPP). In 2012, Germany’s GDP (current prices) was $3.4 trillion and its GDP (PPP) was $3.197 trillion.
The size of the economy – by GDP (PPP) – is expected to be 2.27 percent bigger in 2013 at $3.27 trillion. By 2018, Germany’s GDP (PPP) will reach $3.868 trillion, while its nominal GDP (current prices) is expected to rise to $3.958 trillion.
As a social market economy dedicated to building a competitive economy with strong free initiative and social progress, German citizens generally enjoy low inflation, good working conditions, generous social welfare, and well-maintained public services. Similarly, Germans were the 18th richest people in the world in 2012 going by GDP (PPP) per capita. In 2012, this figure was $39,028, while it is expected to rise by 2.47 percent to $39,993 in 2013. Comparatively, the average GDP (PPP) per capita in the euro area is $34,510.94.
By 2018, Germany’s GDP (PPP) per capita is expected to increase to $47,790. Not only is this higher than the euro area’s projected figure of $40,881, but it also reflects a slightly faster average annual growth rate – of 3.63 percent, compared to 3.45 percent.
Germany’s Unemployment Forecast
The swift and unexpected downfall of East Germany in 1990 led to more than a decade of chronically high unemployment rates for Germany as more than 3 million former East Germans were suddenly added to the census. In 2005, German unemployment reached its peak of 11.208 percent, though reforms introduced by then Chancellor Gerhard Schroeder has since resulted in a gradual drop for the figure.
In 2012, Germany’s unemployment rate had fallen to 5.458 percent. However, with the slump in the euro area affecting exports and industries in Germany, German unemployment has risen once again in 2013. The number of people out of work climbed a seasonally adjusted 21,000 to 2.96 million, according to May government statistics, while employment growth have also slowed.
The IMF forecasts that Germany’s unemployment rate will rise to 5.652 percent in 2013. Most analysts however predict that employment will pick up again in the later half of the year, with the unemployment rate expected to fall to 5.588 percent in 2014. From 2015 to 2018, Germany’s unemployment rate is expected to hover around 5.581 percent.
Germany’s Inflation Rate & Current Account Balance Forecast
Historically, German authorities have taken great pain to keep inflation low thanks to their historical run-in with hyper-inflation from 1921 to 1924, a catastrophe so severe that by its finish, the Weimar Republic was forced to issue one trillion mark notes. As a result, Germany’s inflation rate today is often one of the lowest among the Eurozone countries.
Although inflation (average consumer price change) jumped from 0.234 percent in 2009 to 2.137 percent in 2012, inflation is expected to come down again in 2013 to 1.611 percent. This may lead to conflict within the euro area, and German officials have previously hinted that they may be in favour of slightly higher domestic inflation, but most forecasts still expect German inflation to be lower than the ECB target of 2 percent over the next five years. According to IMF forecasts, Germany’s inflation rate (average consumer price change) will increase marginally to 1.7 percent in 2014 and 2015, before increasing to 1.9 percent by 2018.
Similar to its predilection for low inflation, Germany authorities have kept a massive current account surplus for over a decade. Since 2004, Germany’s current account surplus has never fallen below $127 billion, while in 2012, they had the world’s second largest surplus at $238.5 billion.
This has garnered much criticism from the rest of the region, especially as Germany relies on Europe for about 69 percent of its exports and as such is generating a high current account surplus at the expense of other EU states. In 2012, the European Commission issued a warning to Germany after its current account surplus reached 7.013 percent of its GDP.
Analysts say that If Germany was willing to boost domestic consumption, and temporarily target higher inflation; this would provide greater export demand within Europe. A lower German current account surplus would help increase economic growth in southern Europe.
In the long run, Germany’s current account surplus is expected to decrease and reduce the economic imbalance between EU states. In 2013, it is expected to fall to $219.2 billion (6.093 percent of GDP) before dropping to $187.1 billion in 2018 (4.728 percent of GDP). One forecast predicts that it Germany’s current account will be balanced by 2040.
Read more about Germany’s economy, including industry information, featured analysis and trade statistics below.
