The Bundesbank writes in its latest Monthly Report that the German economy probably continued its robust upswing into the first quarter of this year, with industrial output in January 2018 improving by a seasonally adjusted ½% on the month and 1½% compared with the fourth quarter of 2017. The mechanical engineering sector, above all, registered a significant upturn in output, as did repairs and installation of machinery and equipment.

The Bank’s economists put the growth observed throughout the sector down to businesses’ well-stocked order books. New orders picked up sharply in the second half of the past year in particular, they write. Industry’s January 2018 order intake may have eased by 3¾% on the month, but the Bank’s experts continue to take a very favourable view of the order situation in industry on the whole.

Construction activity remains vibrant

Excellent though the order situation in the main construction sector may be, the construction sector’s contribution to aggregate growth in the first quarter of 2018 will probably be muted at best, the Bank’s economists write, owing to significant capacity constraints which are hindering a swift expansion of construction activity. January saw production contract by a seasonally adjusted 2¼% on the month, primarily as a result of a weakening in construction activity in the finishing trades. Despite the dip in January, the Bundesbank expects construction activity to remain vibrant.

Consumer prices slightly higher in February

According to Federal Statistical Office data, consumer prices (HICP) rose by 0.1% on the month in February. Services including rents increased slightly in price, while energy and food prices eased marginally. Consumer prices for clothing, meanwhile, rose distinctly. The headline rate of inflation, however, declined from last year’s 1.4% to 1.2% because food prices in February 2017 had risen sharply. For March, the Bundesbank’s experts are expecting to see rising travel prices drive inflation sharply higher, since this year’s Easter holidays are earlier than they were in 2017.

Strong labour market momentum

The Bundesbank reports that conditions in Germany’s labour market are still very good at the beginning of 2018. Employment in January increased by 625,000, or 1.4%, on the year. The Monthly Report writes that the bulk of these new jobs are subject to social security contributions, the number of which climbed by 711,000 between December 2016 and December 2017.

Unemployment contracted sharply in February, receding by a seasonally adjusted 22,000 to 2.39 million on the month, and by 216,000 on the year. In their assessment of this development, the Bank’s economists write: “The relatively strong drop in unemployment over the past few months is probably also related to the fact that unemployment among refugees stopped increasing, which turned attention back to the underlying cyclical trend.” They also point to current indicators, which suggest that unemployment will continue to recede further in the future.