Germany – 2019-2020 Scenario: Growth cropped by problems in industry
- Focus 1: labour market downturn?
- Focus 2: exposures for foreign trade?
- Latest economic developments
- The basis of our scenario
The rebound in German growth in Q1 was only a short-term relief. The decline in activity in the industrial sector continued in Q2 and weighed heavily on the annual growth prospects now set at 0.7% in 2019 and 1% in 2020. Domestic demand is likely to support GDP growth positively, but external demand, which is subject to many downward factors, is expected to weigh more heavily.
The number of jobless rose by 60,000 in May and job creations have been gradually slowing since February 2018. The deterioration in the economic environment is more visible in the labour market, with surveys suggesting that firms are loath to hire given their depleted order books. One recent Ifo survey flagged up a desire to rely more on short-time working: some 8.5% of industrial firms polled were considering this type of measure within the next three months, compared with the 3.8% already using it. Recourse to temporary work has been falling since end-2017 as it has become less attractive since new laws to regulate that market came into force. These include an obligation to pay a temporary employee the same as a full-time one after they have worked for at least nine months in the company (15 months maximum in the case of specific industry-wide agreements). The maximum term of temporary work is now set at 18 months.Philippe VILAS-BOAS, Economist