Vroom! Germany’s Economy Revs Up in End of 2016

2016 gave much reason for German manufacturers to close the year on a high note. According to economists and financial reports, Germany’s manufacturing sector posted a notable rise in production and exports, both domestic and international, in the last quarter of 2016. The recorded numbers came as a surprise to financial experts who believed Germany was slated to have a slack year.  Contrary to popular predictions the industrial orders increased by 4.9% in October 2016, much higher than the estimated 0.6% by economists. This production growth has been the largest since 2014. The overall GDP growth for 2016 stood firmly at 1.9% fuelled also by higher domestic consumption rate and increased spending by the state.

 

The Comeback

The first three quarters of 2016 did not show much promise for Germany but emerged as an unexpected leader in the last quarter. Germany showed much resilience to unfavorable conditions such as the exit of Britain from European Union, uncertain global economic policy and overall turbulent economic and political climate. Although the results for first three quarters of the manufacturing sector were modest at best, it’s impressive comeback in last quarter balanced the overall GDP growth for entire year.

 

Why Germany did so well?

Some factors responsible for Germany’s excellent performance include:

• Heavy investment in manufacturing automation.
• Significant rise in capacity utilization in the last quarter of 2016 leading to new orders.
• The surge in domestic demand by 6.3% in October 2016 much thanks to record-high employment numbers, increase in wages and low cost of borrowing from private or public institutions.  
• The increase in foreign exports by 3.9%, a large portion of which resulted from increased demand outside the Euro-currency regions.

 

Outlook for 2017

The continued growth is likely to spill over in 2017 and 2018 although at slower rates.  Germany’s GDP growth is expected to rise from 1.4% to 1.5% in 2017. Germany depends heavily on export to neighboring countries and other foreign markets. The repercussion of Britain fallout from the European Union, US Presidential Elections and the resulting sweeping changes in Government financial policies, and failure of constitutional reforms in Italy are some factors that continue to threaten its forecast growth in upcoming years.

Despite the influx of about a million migrants since early 2015, the employment growth has been steady and continues to surge. The employment rate is expected to go up from 43.5 million to 44.2 million boosting its economy to new levels in the upcoming years. The expanding German workforce will increase the need for skilled personnel to occupy important positions especially in sectors such as manufacturing, construction, etc. where automation has proven to post high numbers. Talent scouts will eagerly seek PLC Programmers and Electromechanical Technicians who are experts in automation to manage and control machinery and equipment in manufacturing assembly lines.

The inflation rate is also expected to rise by 1% from 0.5% in 2016 to 1.5% in 2017 although it is expected to stay with reasonable bounds of European standards.

Conclusion

Currently, Germany is the largest economy in the European Union. The neighboring countries are dependent on Germany for various goods and services. Impressive infrastructure, technological advancement and investment in research and development facilities have propelled Germany to a level of self-reliance and self-sufficiency at least domestically, something that is not visible among its European counterparts. Having said that, since Germany is an export-intensive industrial economy, the global economic and political climate will play an influential role in determining if it will be able to reach, surpass or fall short of the predicted numbers for 2017.