Economic activity remained subdued at the start of the new year. According to the current issue of the Bundesbank’s Monthly Report, this was primarily due to industrial activity continuing to cool. The Bundesbank’s experts write that manufacturing could thus dampen overall economic growth for the third consecutive quarter. By contrast, they expect the construction sector and private consumption to have buoyed growth.

Industrial output declined substantially in January 2019, by 1¼% on the month in seasonally adjusted terms. This was largely attributable to a fresh setback in the automotive industry (-5¾%), according to the Monthly Report. The experts explain that “the renewed dip in passenger car output is most likely due largely to production stoppages caused by a strike at an engine plant in Hungary”. As the strike was resolved in January, the Bundesbank’s economists expect the recent losses in passenger car output to be temporary. However, major catch-up effects in the automotive sector are not expected for the current quarter following the decline in output in the second half of 2018 due to the introduction of a new emissions test procedure. By contrast, excluding the automotive sector, industrial output stagnated in January, according to the Monthly Report.

Construction boom continues

In January 2019, construction output increased slightly by ¼% on the month after seasonal adjustment. Activity in the main construction sector contracted sharply by 3¾%, whereas output in the finishing trades rose steeply by 3½%. According to the Bundesbank’s economists, indicators such as capacity utilisation and the reach of orders suggest that the construction boom in Germany will continue, despite receding activity in the main construction sector of late.

The experts write that private consumption could pick up more clearly again. This is indicated by the sharp rise in retail sales, they say. Consumers are benefiting from the continued positive labour market and income prospects.

The Monthly Report notes that the labour market is so far withstanding the slowdown in economic activity. Employment showed steep growth at the beginning of the year, climbing by 477,000 persons or 1.1% compared to the same month of the previous year. The Bundesbank’s economists still consider labour market developments to be positive, writing that “all indicators of labour demand are expansionary”. They further state that labour market tightness, as reflected, for example, in the ratio of unemployed to job vacancies or the average vacancy period, is still very high.