Although the economic upswing in Germany is essentially still intact, it may have come to a temporary halt in the third quarter of 2018. According to the Bundesbank’s latest Monthly Report, this was mainly due to a substantial fall in production by car manufacturers. The Bundesbank’s experts write, moreover, that the booming construction sector is expected to have decelerated after recording strong growth in the second quarter, and add that information available to date indicates that retail sales were also relatively subdued.

The Monthly Report states that the Bank’s experts do not expect the pause in growth to be long-lived, and that the difficulties in the automotive industry should soon be over, pointing out that business expectations in this sector again rose significantly of late. Given that, according to the ifo Institute, the overall business climate in Germany also picked up appreciably in the third quarter, the Bundesbank expects German economic output to expand considerably again in the current three-month period. 

Production slump in automotive sector 

Industrial output decreased strongly on an average for July and August compared with the second quarter (by 1½%). The main reason for this was a very significant drop in output in the automotive sector (by 9%). One key factor behind this were problems related to the switch to new and uniform EU-wide mandatory emissions tests for newly registered vehicles. According to the Bundesbank’s experts, the associated temporary production losses severely dampened industrial output. Excluding the automotive sector, however, they report that industrial output maintained the level of the previous quarter, although other sectors were also affected by the slump in the automotive sector through supply chain effects.

Substantial drop in construction output  

Construction output in August 2018 declined sharply (by 1¾%) on the month in seasonally adjusted terms. On an average for July and August, it saw scarcely any change compared with the strong second-quarter figures. However, the Bundesbank’s economists expect the construction boom in Germany to continue and explain that this is indicated, inter alia, by the assessment of the business situation in the main construction sector, where new record highs were achieved multiple times in the third quarter.

According to the Monthly Report, the increase in the number of persons in employment in August was comparatively moderate in seasonally adjusted terms. Employment rose thanks mainly to strong growth in jobs subject to social security contributions. On the other hand, there was a substantial contraction in the low-paid part-time employment segment and in the number of self-employed persons.

Sharp decline in unemployment

Seasonally adjusted unemployment fell more sharply in September than in the summer months, with the unemployment rate declining by 0.1% to 5.1%. As the Bundesbank’s experts see it, the rather sharp fall could be attributable in part to the expansion of labour market policy measures at the end of the summer holiday period.

Crude oil significantly more expensive

Crude oil prices rose markedly in September amidst geopolitical uncertainties and slower production growth, climbing by just under 8% higher on the month and almost 45% on the year.

The increase in crude oil prices drove energy prices up significantly. Food, industrial goods and services likewise experienced marked price increases against the previous month. All told, consumer prices (as measured by the Harmonised Index of Consumer Prices, or HICP) rose strongly in September as a result, namely by 0.5% in seasonally adjusted terms.