Download Ifo Economic Forecast 2015: German Economy on the Upturn (PDF, 673 KB)

Institute
Leibniz Institute for Economic Research
at the University of Munich
PRESS RELEASE
EMBARGO until 17 June 2015 at 10:00 CET
Ifo Economic Forecast 2015: German Economy on the Upturn
Munich, 17 June 2015 – The German economy is currently experiencing a
sharp upturn. Real domestic product is expected to expand by 1.9% this
year and by 1.8% in 2016. Private consumption remains the driver behind
the upturn since the revenue outlook of private households is good due to
continued improvements in the labour market. However, purchasing
power gains thanks to falling oil prices are gradually fading, which is
expected to weaken the consumption dynamic slightly over the
forecasting period. Corporate investments will grow in an extremely
favourable financial environment. The construction boom also looks set
to continue. The depreciation of the euro is expected to stimulate exports
through the second half of this year. The world economy will
subsequently cool down slightly over the course of 2016 and will curb
growth in exports. Imports will increase somewhat more quickly than
exports due to strong domestic demand. Overall, demand-side impulses
will come from the domestic economy just like last year.
World economic situation
The pace of world economic growth slowed markedly in spring. In line with this
development, the expansion rate of industrial production - both in manufacturing
and in emerging economies - slowed down considerably compared to autumn
2014. Moreover, after a sharp increase in the second half of 2014, there was a
downturn in world trade in the first quarter of 2015. However, there are strong
indications that the weakening in the world economy is only of a short-term
nature and will already be largely overcome this summer. The slowdown in the
first quarter was largely due to one-off special factors in the USA, which will not
have any further impact in the forecasting period. Moreover, the world economy
is expected to benefit from developments in oil prices. The price of a barrel of
Brent fell from 112 US dollars in June 2014 to 48 US dollars in January 2014,
before recovering in spring and stabilising recently at the comparatively low
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
1/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
level of nearly 65 US dollars. The massive reduction in the price of this key
commodity is expected to give those countries and regions that are net oil
importers a strong economic boost. The Ifo World Economic Climate, which is
presently at a high level and has improved significantly since its low point in
winter, also suggests that the pace of world economic growth will continue over
the course of this year at similarly high rates as last autumn.
Monetary policy in the major advanced economies remains very expansive.
Trends in the degree of monetary policy expansion in recent months have
diverged significantly. While an interest rate turnaround will be introduced
during the forecasting period in the USA and the United Kingdom, the European
Central Bank and the Bank of Japan have massively expanded their bondbuying programmes in recent months, and have signalled their readiness to
leave base rates at their current level of almost zero beyond the forecasting
period. This monetary policy divergence has given rise to marked exchange
rate fluctuations since the middle of last year. The euro and the Japanese yen
have massively depreciated, while the reverse was seen in the US dollar and
the British pound. The degree of expansion in monetary policy also differed
considerably in emerging economies over the past winter half year. The central
banks of several Asian countries used the leeway created by moderate inflation
to implement interest rate decreases. In Brazil and Russia, by contrast, the
monetary policy reins were tightened considerably to counteract the heavy
depreciation pressure on domestic currencies.
The impact of financial policy will be more or less neutral in most advanced
economies this year and next, after being restrictive last year, albeit to differing
degrees in individual regions. Japan will be the only government to generate
negative economic impulses. In emerging economies financial policy over the
forecasting period will be characterised by a high degree of heterogeneity.
Public investment programmes will support the economies of India and China.
In Brazil, by contrast, financial policy will be markedly more restrictive this year
and in 2016.
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
2/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
Outlook for the world economy
After a temporary setback in spring 2015 world economic activity is expected to
have picked up considerably in the second quarter and will expand at a rising
rate over the course of the year. Last but not least, this acceleration will be
driven by the sharp fall in oil prices last autumn. Although oil exporting countries
are partly labouring under massive income losses, the majority of economies
that are net oil importers – including the major advanced countries, as well as
key emerging economies – are comparatively willing to spend their money. Oil
price developments will accordingly have a positive net effect on the world
economy. Since this effect will gradually fade over the year ahead, the pace of
world growth will probably slow slightly.
The economic development of the major advanced economies will also be
influenced by strong adjustments in nominal exchange rates that began in mid2014. Developments in US exports are expected to remain constrained by the
strengthening of the dollar. Demand for goods and services from the euro area
and Japan, by contrast, is expected to grow increasingly dynamically. The
USA’s aggregate economic output will nevertheless expand more sharply than
that of the euro area and Japan over the forecasting period. Domestic demand
in the USA will benefit from the improved asset situation of households and
companies, a brightening in the labour and real-estate market, expansive
monetary policy and a fiscal policy that is barely restrictive any longer. In the
euro area, by contrast, economic developments will continue to be weakened
by several structural problems, although the burdens resulting from the
structural reforms in the banking sector, the labour markets and the goods
market implemented in several member countries will gradually lessen this load.
Japan’s economy is also expected to expand only moderately over the
forecasting period. Monetary policy in Japan is admittedly extremely expansive
and the planned gradual commissioning of a series of nuclear power stations,
which were taken down from the network after the Fukushima disaster, will
reduce the need for energy imports. However, a clearly restrictive financial
policy will prevent a sharper upswing.
The pace of growth in emerging economies will hardly pick up over the
forecasting period compared to last year. Several members of this group of
countries will benefit from the stronger economic dynamic in key advanced
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
3/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
economies. Monetary policy has also become more expansive in many parts of
East Asia recently. However, the decline in oil and commodity prices in recent
months will only minimally stimulate the combined economic output of emerging
economies. For the aggregate income of Russia, Brazil and the majority of Latin
American states is heavily dependent on the exports of various commodities.
Moreover, monetary and financial policy in Brazil recently turned more
restrictive, while Russia is increasingly starting to feel the negative impact of
economic sanctions resulting from political tensions with the West. Both Russia
and Brazil are expected to slip into recession over the course of this year,
before experiencing a moderate recovery in 2016. The pace of growth in
aggregate production in China will slow slightly, despite supportive economic
policy measures. In addition to the cool down in the real-estate sector, this will
primarily be due to the gradual restructuring of the Chinese economy that will
involve a shift in the main pillar of the economy from exports to private
consumption.
All in all, overall economic production in the world looks set to grow by 3.2% this
year. The global economic dynamic is expected to lose impetus slightly over the
course of 2016. However, the annual average rate of change in world real gross
domestic product will nevertheless be higher than this year at 3.7% due to the
weak first quarter of 2015. Accordingly, world trade is expected to grow by 3.4%
in 2015, and by 5.1% in 2016.
Risks
Developments in oil prices represent a major risk for the world economy in the
quarters ahead. This risk may be of a positive or negative nature. The prospect
of rapid growth in global oil supply cannot be ruled out if Iran, for example,
which has the tenth biggest production capacity in the world, were to regain
access to the international commodity markets by finally settling its quarrel over
nuclear weapons with the West. Such a scenario would be accompanied by
another drop in oil prices and would provide further positive impulses for the
world economy. An unexpected escalation in political conflicts involving
important oil producing countries (in the Middle East, Libya or Russia), by
contrast, would lead to a drop in oil extraction levels and to a clear rise in the
cost of this key commodity. A potential widening of political rifts between Russia
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
4/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
and the West also poses major threats to the gas supply of several members of
the European Union.
There are also risks related to the gradual tightening of monetary policy in the
USA. The Fed can be expected to implement its first interest rate increases in
the second half of this year. This would increase the relative attractiveness of
the USA as an investment location and should entail portfolio shifts at the
expense of other regions. In an extreme case, this could lead to massive capital
outflows from the emerging economies, leading to huge fluctuations in the
financial market, and even triggering exchange rate crises.
Ultimately, Greece remains in a highly precarious economic position. The
country still has no access to the international capital markets. Negotiations with
international institutions over a new adjustment programme also ground to a
halt recently. Should no agreement be reached, Greece faces the threat of
insolvency and its consequences, which are very hard to assess. However, an
agreement that hardly requires Greece to implement any further reforms entails
risks. The governments of other euro area countries could interpret this result
as a signal that a lack of budgetary discipline, as well as the abandoning or
even the reversal of painful, but necessary structural reforms will go
unpunished. They may assume that even if a member state were to be locked
out of the international capital markets, international institutions would leap into
the breach by providing favourable refinancing conditions.
German economic situation
The German economy is experiencing a strong upswing in the early summer of
2015. Total economic production grew by 0.3% in the first quarter of 2015 on a
seasonally and calendar-adjusted basis, after growing at a rate of 0.7% during
the final quarter of 2014 boosted by the collapse in crude oil prices. On a
combined basis, real gross domestic product rose at an ongoing annual rate of
2% in the winter half year of 2014/2015. The previous economic weakness – in
the summer half year of 2014 economic production stagnated – came to an end
more quickly than predicted in December by the Ifo Institute. The Ifo Business
Climate has staged a clear recovery since last autumn. Companies’
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
5/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
assessments of their current business situation have been more optimistic
recently.
The increase in real gross domestic product after the turn of the year was due
to an upturn in domestic demand, as in the last quarter of 2014. Private
consumption once again made the greatest contribution to growth, boosted by
the favourable labour market situation and rising wages. Higher purchasing
power also continued to have an impact due to the previous sharp drop in oil
prices. Investments in equipment increased at a faster pace, while capacity
utilisation remained at normal levels. Investments in construction, and
particularly in the commercial sector, also expanded slightly more strongly than
previously, probably boosted by the mild winter weather. Foreign trade, by
contrast, made a negative contribution to the change in real gross domestic
product, as in the last quarter of 2014. Destocking also had a dampening impact
on developments in production.
In all this, the rise in employment continued in the first quarter of 2015, although
the increase was very modest. The subdued development was due to the
downturn in marginal employment due to the introduction of the minimum wage,
which was only partially offset by the creation of new jobs subject to social
security contributions. The number of unemployed continued to fall until
recently, despite sustained immigration.
Outlook for the German economy
The upturn will continue over the forecasting period as the framework conditions
for the German economy remain favourable. Monetary policy will continue to
have an expansive effect and the financing conditions for companies, which
were already very favourable, have improved even further. Investments in new
equipment will continue to grow. With production capacity utilisation remaining
at normal levels, the focus will be on replacement. The construction boom also
looks set to continue. Since the income outlook of private households is also
good thanks to continued improvements in the labour market, private
consumption remains the main driver behind the upturn. However, since
purchasing power gains thanks to falling oil prices will no longer be a factor, it
should prove difficult to maintain the current pace. The depreciation of the euro
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
6/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
will continue to stimulate exports into the second half of this year. Over the
course of 2016 the world economy will subsequently cool down somewhat and
will hamper growth in exports. Thanks to strong domestic demand, imports will
rise somewhat faster than exports. Overall, the demand-side impulses are
expected to come from the domestic economy like last year. Real gross
domestic product is forecast to grow by 1.9% this year, and by 1.8% in 2016.
Demand for labour should grow more quickly over the rest of the year. The pace
of growth, however, will slacken slightly in 2016 since shortages in several
labour markets – especially of qualified workers - and rising labour costs make
themselves felt. All in all, the active labour force is expected to grow by 235,000
persons in 2015 and by 250,000 in 2016. However, the decline in
unemployment of 135,000 persons this year and 120,000 persons next year is
expected to be weaker than suggested by the increase in the active labour
force. There is also a clear upturn in labour force potential thanks to
immigration. The unemployment rate looks set to drop to 6.3% this year and
6.0% in 2016.
The consumer price level is expected to continue to rise at a slightly faster pace
over the forecasting period. The depreciation of the euro in recent months
makes imported goods and services more expensive, which will slowly be
passed on to consumers. Labour costs and production capacity utilisation rates
are also rising significantly. Due to the minimum wage the consumer price level
will rise by around ¼ % on annual average in 2015. Overall, the inflation rate of
0.8% this year will rise to 1.6% next year.
In all this, the German government’s budget surplus is expected to rise
somewhat. In 2015 the surplus will total 0.7 percent of gross domestic product
and 0.8 percent in 2016. General government gross debt looks set to drop from
roughly 75 percent of gross domestic product in 2014 to around 67 percent in
2016.
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
7/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
Key Forecast Figures
For a more detailed presentation of the economic forecast, see T.
Wollmershäuser, W. Nierhaus, T. O. Berg, C. Breuer, C. Grimme, S. Henzel, A.
Hristov, N. Hristov, W. Meister, J. Plenk, F. Schröter, A. Steiner, K. Wohlrabe,
E. Wieland, A. Wolf: ifo Konjunkturprognose 2015: Deutsche Wirtschaft im
Aufschwung, ifo Schnelldienst, to be published.
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
8/9
Institute
j
Leibniz Institute for Economic Research
at the University of Munich
The forecast can be accessed and downloaded at http://www.cesifogroup.de/prognose or requested via email at: [email protected].
Contact: Prof. Dr. Timo Wollmershäuser ([email protected], Tel.
089/9224-1406).
Follow Ifo President Hans‐Werner Sinn on Twitter: https://twitter.com/HansWernerSinn
Follow the Ifo Institute on Twitter: https://twitter.com/ifo_Institut Follow the CESifoGroup on Twitter: https://twitter.com/CESifoGroup
About the Ifo Institute
Information and research is what the Ifo Institute has stood for ever since it was founded in January 1949.
The Institute takes the legal form of a registered association and is recognised as a charitable, non-profit
organisation. Ifo is one of Europe's leading research institutes and is also the economic research institute
most frequently cited in the German media. Thanks to a cooperation agreement, Ifo enjoys close links with
the Ludwig-Maximilians-University of Munich (LMU); and in 2002 it gained the status of an "Institute at the
University of Munich". Within the CESifo Group the Ifo Institute cooperates very closely with the Center for
Economic Studies (CES) and CESifo GmbH. CESifo is also the brand name used to cover the
international activities of the entire group.
PRESSE, REDAKTION, KONFERENZEN:
Tel. +49-89-9224-0
Harald Schultz, DW -1218, [email protected]
www.cesifo-group.de
9/9