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May 5, 2017
Growth in global trade almost stagnated at just 1.3% in 2016, and in some months was even negative. During winter, global trade picked up again, rising by around 3% compared to the same period a year earlier. Given the positive sentiment prevailing across the globe, this rebound could well continue. However, this trend is not yet being fully reflected in other hard economic indicators, usually highly correlated with global trade, and sentiment may therefore overstate the actual trend a little. Still, our simple model of world trade, which suggests moderate growth of just over 2% in 2017 and around 3% in 2018 might represent the lower limit of the forecast range. However, compared to previous cycles the upturn could remain weak, not least because of the global trade restrictions that have been progressively ratcheted up since 2008. [more]
Focus Germany Cyclical upturn in global trade despite additional trade barriers. Growth in global trade almost stagnated at just 1.3% in 2016, and in some months was even negative. During winter, global trade picked up again, rising by around 3% compared to the same period a year earlier. Given the positive sentiment prevailing across the globe, this rebound could well continue. However, this trend is not yet being fully reflected in other hard economic indicators, usually highly correlated with global trade, and sentiment may therefore overstate the actual trend a little. Still, our simple model of world trade, which suggests moderate growth of just over 2% in 2017 and around 3% in 2018 might represent the lower limit of the forecast range. However, compared to previous cycles the upturn could remain weak, not least because of the global trade restrictions that have been progressively ratcheted up since 2008. The current buoyancy in global trade is partly due to the rise in the price of crude oil to over USD 50/barrel, which has led to an increase in investment activity in many emerging markets and in the US. Increased revenues on the back of the higher oil price are facilitating the funding of pent-up demand for investment in the oil industry and other sectors, and thus stimulating global trade. By end-2016, a record number of almost 44 million Germans were gainfully employed. This represents an increase of roughly 11% or more than 4 million over 2005. However, things developed quite differently at the sector level. Corporate services providers registered the biggest increase in employment (2016 vs 2005: +36%), followed by public-sector services providers (including healthcare and education), which saw employment rise by 14%. These two sectors alone explain almost 70% of the increase in employment in absolute terms since 2005. However, productivity is below the average in both sectors – a dent in the otherwise favourable picture of the German labour market. The View from Berlin: Election campaign not in full swing, yet. After the spike in the support for the SPD following the nomination of Martin Schulz as SPD candidate earlier this year, Merkel’s CDU/CSU is now back in the lead with about 5pp in the average of polls. However, it is likely to remain a close call until the final election date of Sept 24. One reason for the current lacklustre political campaigns might be that major challenges for Germany’s political leadership come from beyond the borders, above all European politics such as revitalising the German-French relationship, managing Brexit or orchestrating a European response to migration and the development in Turkey. In all those areas, there is more consensus than differences in substance between the major parties (as well as the Greens and the FDP) which share a broad pro-EU approach and the mindset that Germany should exert leadership foremost in cooperation with its EU partners. The series of state elections so far will end with the one in North Rhine-Westphalia which deserves closer attention. A stronghold of the SPD, polls indicate a catching up of the CDU. The vote there will be an important signpost for the federal elections. Author Barbara Böttcher +49 69 910-31787 barbara.boettcher@db.com Dieter Bräuninger +49 69 910-31708 dieter.braeuninger@db.com Eric Heymann +49 69 910-31730 eric.heymann@db.com Jochen Möbert +49 69 910-31727 jochen.moebert@db.com Stefan Schneider +49 69 910-31790 stefan-b.schneider@db.com Editor Stefan Schneider Deutsche Bank AG Deutsche Bank Research Frankfurt am Main Germany E-mail: marketing.dbr@db.com Fax: +49 69 910-31877 www.dbresearch.com DB Research Management Stefan Schneider Content Page Forecast tables ...............................................2 Cyclical upturn in global trade despite additional trade barriers ..................................3 Germany’s employment miracle: All that glitters is not gold – a breakdown by sectors ..............5 The view from Berlin. European and international policy agenda still supersedes the election campaigns .............. 11 DB German Macro Surprise Index ................ 13 Export Indicator............................................. 14 Event calendar .............................................. 15 Data calendar ............................................... 15 Financial forecasts ........................................ 16 Data monitor ................................................. 17 May 5, 2017 Positive signs Positive signs 2 | May 5, 2017 Focus Germany Economic forecasts DX Real GDP Consumer Prices* Current Account Fiscal Balance (% growth) (% growth) (% of GDP) (% of GDP) 2016 2017F 2018F 2016 2017F 2018F 2016 2017F 2018F 2016 2017F 2018F Euroland 1.7 1.3 1.5 0.2 1.4 1.5 3.3 2.8 2.5 - 1.8 - 1.5 - 1.5 Germany 1.9 1.1 1.6 0.5 1.7 1.6 8.4 8.0 7.8 0.8 0.5 0.2 France 1.1 1.3 1.1 0.3 1.2 1.3 - 0.9 - 0.3 - 0.1 - 3.2 - 3.2 - 3.1 Italy 0.9 0.7 0.7 - 0.1 1.0 1.2 2.9 2.7 2.3 - 2.3 - 2.3 - 2.3 Spain 3.2 2.5 2.2 - 0.4 1.7 1.7 2.0 1.7 1.7 - 4.5 - 3.2 - 2.8 Netherlands 2.1 2.1 1.5 0.1 1.0 1.2 8.4 10.2 10.2 - 1.1 - 0.7 - 0.5 Belgium 1.2 1.1 1.3 1.8 2.0 1.8 - 0.4 1.0 1.0 - 3.0 - 2.5 - 2.6 Austria 1.5 1.5 1.6 1.0 1.8 1.6 1.7 2.8 3.1 - 1.4 - 1.2 - 1.0 Finland 1.4 1.2 1.5 0.4 1.3 1.4 - 1.1 - 0.4 - 0.3 - 2.3 - 2.2 - 1.7 Greece - 0.1 1.4 1.6 0.2 1.3 1.0 - 0.6 1.2 1.5 - 3.7 - 2.4 - 2.2 Portugal 1.4 1.6 1.2 0.7 1.4 1.5 1.0 0.7 0.7 - 2.2 - 2.0 - 2.0 Ireland 5.2 2.8 3.0 - 0.2 1.1 1.4 4.7 10.0 8.0 - 1.1 - 1.1 - 1.0 UK 1.8 1.7 1.1 0.7 2.3 2.7 - 5.2 - 4.8 - 4.0 - 3.3 - 2.9 - 2.5 Denmark 1.3 1.7 1.8 0.3 1.1 1.4 6.5 6.5 6.5 - 2.1 - 2.5 - 1.9 Norway 0.7 1.6 1.8 3.6 2.7 2.5 4.4 6.2 7.0 3.7 3.9 4.2 Sweden 3.1 2.0 2.3 1.0 1.7 1.9 4.6 4.2 4.4 2.0 - 0.2 0.0 Switzerland 1.3 1.5 1.7 - 0.3 0.5 0.7 9.5 9.3 9.0 - 0.1 - 0.1 - 0.1 Czech Republic 2.3 2.7 2.8 0.7 2.6 2.2 1.1 1.2 1.1 0.1 - 0.6 - 0.6 Hungary 2.0 3.2 3.0 0.4 2.9 3.2 4.2 3.7 3.2 - 1.8 - 2.5 - 2.3 Poland 2.8 3.2 3.4 - 0.6 1.9 2.2 - 0.3 - 1.2 - 1.4 - 2.6 - 3.0 - 2.9 United States 1.6 2.2 3.6 1.3 2.3 2.1 - 2.8 - 3.4 - 4.1 - 3.1 - 2.9 - 2.4 Japan 1.0 1.1 1.2 - 0.1 0.7 1.1 3.8 3.8 3.9 - 3.4 - 3.6 - 3.3 China 6.7 6.7 6.3 2.0 1.7 2.7 2.4 2.1 1.8 - 3.8 - 4.0 - 4.0 World 3.1 3.5 3.9 4.2 5.1 4.4 *Consumer price data for European countries based on harmonized price indices except for Germany. This can lead to discrepanc ies compared to other DB publications. Sources: National Authorities, Deutsche Bank Forecasts: German GDP growth by components, % qoq, annual data % yoy DX 2016 2017 2014 2015 2016 2017F 2018F Q1 Q2 Q3 Q4 Q1F Q2F Q3F Q4F Real GDP 1.6 1.7 1.9 1.1 1.6 0.7 0.5 0.1 0.4 0.4 0.3 0.4 0.4 Private consumption 0.9 2.0 2.0 1.0 1.4 0.7 0.2 0.2 0.3 0.3 0.2 0.4 0.3 Gov't expenditure 1.2 2.8 4.0 1.5 1.0 1.3 0.9 0.2 0.8 0.3 0.2 0.3 0.3 Fixed investment 3.4 1.7 2.3 0.4 2.8 1.8 - 1.5 - 0.2 0.8 - 0.2 1.2 0.6 0.7 Investment in M&E 5.5 3.7 1.1 - 0.2 2.4 0.9 - 2.3 - 0.5 - 0.1 1.1 0.3 0.3 0.3 Construction 1.9 0.3 3.0 1.0 3.7 2.7 - 1.7 - 0.3 1.6 - 1.4 2.2 1.0 1.2 Inventories, pp - 0.3 - 0.5 - 0.1 0.2 0.0 - 0.4 - 0.1 0.3 0.3 - 0.1 - 0.1 0.0 0.0 Exports 4.1 5.2 2.6 3.0 3.7 1.4 1.2 - 0.3 1.8 0.8 0.7 1.1 1.0 Imports 4.0 5.5 3.7 3.6 4.1 1.4 0.1 0.4 3.1 0.1 0.6 1.3 1.1 Net exports, pp 0.4 0.3 - 0.4 - 0.1 0.0 0.1 0.5 - 0.3 - 0.4 0.4 0.1 0.0 0.0 Consumer prices* 0.9 0.2 0.5 1.7 1.6 0.3 0.1 0.5 1.1 1.9 1.6 1.6 1.8 Unemployment rate, % 6.7 6.4 6.1 5.8 6.0 6.2 6.1 6.1 6.0 5.9 5.8 5.7 5.8 Industrial production 1.5 0.5 1.3 0.6 1.4 Budget balance, % GDP 0.3 0.7 0.8 0.5 0.2 Public debt, % GDP 74.9 71.2 68.3 65.9 63.4 Balance on current account, % GDP 7.3 8.3 8.4 8.0 7.8 Balance on current account, EUR bn 213 253 263 259 260 *Inflation data for Germany based on national definition. This can lead to discrepancies to other DB publications. Sources: Federal Statistical Office, German Bundesbank, Federal Employment Agency, Deutsche Bank Research Positive signs 3 | May 5, 2017 Focus Germany Cyclical upturn in global trade despite additional trade barriers — Growth in global trade almost stagnated at just 1.3% over 2016 as a whole, and in some months was even negative. But over the winter months, global trade picked up again, rising by around 3% compared to the same period a year earlier. Given the positive sentiment prevailing across the globe, this rebound could well continue. — However, this trend is not yet being fully reflected in hard economic indicators and sentiment may therefore overstate the actual trend a little. It may be that our simple modelling of world trade, which suggests moderate growth of just over 2% in 2017 and around 3% in 2018, represents the lower limit of the forecast range. On the other hand, the cyclical upturn could remain weak, not least because of the global trade restrictions that have been progressively ratcheted up since 2008. — The current buoyancy in global trade is partly due to the rise in the price of crude oil to over USD 50/barrel, which has led to a sharp increase in investing activity in many emerging markets and in the US. Increased revenues on the back of the higher oil price are facilitating the funding of pent-up demand for investment in the oil industry and other sectors, and thus stimulating global trade. Global trade growing by more than 3% at the start of 2017 Global trade has been stagnating since 2012 and, unlike in past decades, growth has been weaker than that of global GDP. The lack of buoyancy since 2012 points to structural changes. 1 Global trade has even contracted at times over the last two years, which in the past had only ever happened during the severe recessions in 2001/02 and after the global financial crisis in 2007/08. But the latest figures indicate a rebound. Towards the end of 2016 there was an increase of around 3% relative to the same period in 2015, and this carried over into the early part of 2017. At the same time, global industrial output also rose by around 3%. Economic cycle: wage and productivity increases more likely The global economic climate is currently more conducive to growth than it has been in recent years. Thanks to the relatively long current economic cycle (almost ten years), unemployment rates in many countries have slipped below long-term national averages, employment has risen globally and in some sectors and countries there are signs of a shortage of skilled workers. This potential labour market shortage makes wage and productivity rises more likely today in comparison with the sluggish environment of the past few years. The plans for deregulation and tax cuts announced by the US administration have further fuelled global growth forecasts. Sentiment indicators and commodity prices are driving global trade In this climate, many sentiment indicators have improved significantly, particularly in the US but also elsewhere. Analysts typically regard purchasing managers' indices within the manufacturing sector as among the most important global trade indicators, primarily the global PMI and the ISM index which measures the momentum of the US industry. These have a lead time of a few months and are currently indicating a further upturn in growth. Because of the strength of the German export sector we also look at the expectations of German companies for the next six months (ifo expectations). According to our 1 See Peters and Schneider (2014). Sluggish global trade – cyclical or structural? Global Economic Perspectives. 0 1 2 3 4 12 13 14 15 16 17 Real GDP Real trade Sources: OECD, CPB, Deutsche Bank Research Global GDP vs. global trade 1 % yoy 0 1 2 3 73 77 81 85 89 93 97 01 05 09 13 17 5YMA Long - term average dimensionsless Sources: OECD, CPB, Deutsche Bank Research Elasticity of global trade elasticity relative to global GDP-growth 2 - 6 - 3 0 3 6 00 02 04 06 08 10 12 14 16 EMU USA US and Euro area: Employment 3 % yoy Sources: Eurostat, BLS, Deutsche Bank Research 0 0 6 12 47 57 67 77 87 97 07 17 Recession Unemployment rate % Sources: BEA, Department of Labor, Deutsche Bank Research US - Business cycle: Unemployment rate vs. recessions 4 Positive signs 4 | May 5, 2017 Focus Germany calculations, the ifo expectations are as much as twelve months ahead of global trade growth. Global indicators from the shipping industry are another frequently used measure to assess the pace of growth in global trade. The survey-based Baltic Dry Index measures the price trend for the transport of important commodity such as coal and iron ore on global shipping routes, while the RWI/ISL index measures global container throughput, and thus the quantity of end products transported. Both indicators have recently hit multi-year highs (Chart 7) and thus confirm the increasing global momentum. However, in recent years a weakening of the correlation with global trade performance has been noticed. The current highs for the two indicators therefore cannot be directly extrapolated to growth in global trade. The price of oil and commodities prices are also important determinants of global trade, with higher prices dampening growth. However, commodities prices often rise in an environment conducive to growth, and global trade also benefits from this. However, in recent months the rising price of crude oil may well have stimulated global trade. The particularly low crude oil price at the start of 2016 – at times below USD 30/barrel – not only reduced exports from many emerging markets but also halted investment and thus led to a sharp reduction in imports. There was a slump in orders for German cars and engineering products from the emerging markets. In the US too, the particularly low oil price led to a significant reduction in investment activity in the shale oil industry. The recovery in the crude oil price witnessed over the last six months is therefore likely to have been a contributory factor in the bounce-back of global trade. Moreover, despite now being back at around the USD 50/barrel mark, the crude oil price is still well below the average for the period 2012-2014 when it rose above USD 100/barrel. Thanks to sustained high levels of consumer spending and the avoidance of negative investment effects, the current crude oil prices could be particularly conducive to growth in global trade. Model confirms recovery in global trade We used the sentiment and price indicators discussed above to model the growth in global trade. The forecasts (out-of-sample) are generally more reliable if they only consider a small number of variables. This is also true for a global trade model based solely on ifo expectations and the crude oil price (Brent), which shows a good quality of forecast for the period 2014-2017 (see Chart 10, out-of-sample Root Mean Square Error, RMSE = 1.2 percentage points). According to these estimates, global trade is picking up although it is unlikely to be able to maintain its current pace. Our calculations suggest growth of 2.1% in 2017 and 2.9% in 2018. The difference between these and the significantly higher IMF estimates which put growth in global trade at 3.8% and 3.9% respectively corresponds to the overestimate of 1.8 percentage points per year in the years 2014 to 2016. According to our estimates, the elasticity of the growth in global trade relative to global GDP growth would increase to almost 1. In view of the overlayering of cyclical and structural impediments to growth in the last ten years, it is important not to overestimate the forecast quality of this type of model. If the impact of structural impediments such as the weakness of global foreign direct investment were to lessen, the actual growth this year and next year could be ½ to 1 percentage point above our modelled forecast. Surge in protectionism since 2008 The number of global barriers to trade has steadily risen since 2008, despite all the good intentions expressed at G20 summits. And the new US administration intends to cancel planned trade agreements (TPP) or renegotiate existing ones (NAFTA). The negotiations for the trade agreement between the EU and the USA (TTIP) are set to continue, but we are unlikely to see any deal or additional impetus for global trade before the end of the decade. One of the few glimmers -3 0 3 6 46 50 54 58 12 13 14 15 16 17 Global PMI ISM (US) Global trade (right) Sources: Markit , ISM, CPB, Deutsche Bank Research Global trade vs. global PMI and ISM 5 left y-axis: index<50 contrac., >50 expansion right y-axis: % yoy -3 0 3 6 90 97 104 111 12 13 14 15 16 17 12MLead ifo - Eexpectatins Global trade (rechts) Sources: Markit , ISM, CPB, Deutsche Bank Research Global trade vs. ifo-Expectations 6 left y-axis: index<100 contrac., >100 expans. right y-axis: % yoy -80 0 80 160 240 320 400 -6 -3 0 3 6 9 12 12 13 14 15 16 17 RWI/ISL container throughput Real trade Baltic Dry Index (right) Bank Research % yoy Sources. Bloomberg Finance LP, RWI/ISL, Deutsche Global trade & shipping: Baltic Dry Index & RWI/ISL Container throughput 7 -1 0 1 2 3 4 5 6 340 370 400 430 460 490 520 550 12 13 14 15 16 17 18 CRB Global trade (right) Sources: Bloomberg Finance LP, CPB, Deutsche Bank Research Global trade vs. commodity prices 8 left y-axis: index (19 commodities) right y-axis: % yoy Positive signs 5 | May 5, 2017 Focus Germany of light in the increasingly protectionist current environment is the CETA agreement. With the signing of the treaty between the EU and Canada in November 2016, there are now real hopes that it will also be ratified by the national parliaments in Europe. However, this one bright spot is likely to provide only a modest stimulus to global trade - at least relative to the numerous additional protectionist measures. It therefore seems likely that the current upturn in growth has cyclical rather than structural causes. Downward potential for German net exports and current account Germany's export industry would benefit from a stronger rate of growth in global trade. In January and February there was a surprise increase in nominal exports. Relative to our current forecasts for real exports of 3.0% in 2017 and 3.7% in 2018, there are therefore substantial risks of upward revisions. Based on our estimates for global trade (2.1% in 2017 and 2.9% in 2018) and the elasticity of exports relative to the growth of global trade in 2016 of around 2, German exports could climb above 4% in 2017 and to more than 6% in 2018. In view of the robust domestic economy and the record employment figures, growth in imports may outstrip growth in exports again, as in recent years. Based on the elasticity of imports relative to growth in global trade of 2.9 in 2016, imports would increase by around 6% in 2017 and by as much as 8% in 2018. Consequently, net exports in 2017 and 2018 could depress GDP growth more strongly than currently forecast (minus 0.1 and 0.0 percentage points). However, a forecast revision would require a reversal in the rate of export growth at the start of the year, which is consistent with our current forecasts for net exports in the first quarter of 2017 (up 0.4 percentage points). These potential risks of a downward revision of our GDP forecast could lead to a fall in the German current account surplus (end of 2016 7½% relative to GDP) and go at least some way towards placating the numerous critics of Germany’s export success. Jochen Möbert (+49 69 910-31727, jochen.moebert@db.com) -1 0 1 2 3 4 5 6 0 20 40 60 80 100 120 140 12 13 14 15 16 17 Brent Global trade (right) Global trade and crude oil prices 9 left y-axis: USD/Bbl right y-axis: % yoy Sources: Bloomberg Finance LP, CPB, Deutsche Bank Research -2 0 2 4 6 12 13 14 15 16 17 18 Estimate (Out - of - Sample) Global trade Sources: CPB, Deutsche Bank Research Global trade vs. model 10 % yoy 0 300 600 900 1200 1500 10 11 12 13 14 15 16 Stock of measures Removals Number of measures Source: WTO Trade restrictions increased since financial crisis 11 0 2 4 6 12 14 16 18 Exports Imports Global trade % yoy Germany: Real export and import elasticity 12 Sources: CPB, National Statistical Office, Deutsche Bank Research Positive signs 6 | May 5, 2017 Focus Germany Germany’s employment miracle: All that glitters is not gold – a breakdown by sectors — By end-2016, a record number of almost 44 million Germans were gainfully employed. This represents an increase of roughly 11% or more than 4 million over 2005. — However, things developed quite differently at the sector level. Corporate services providers registered the biggest increase in employment (2016 vs 2005: +36%), followed by public-sector services providers (including healthcare and education), which saw employment rise by 14%. These two sectors alone explain almost 70% of the increase in employment in absolute terms since 2005. — However, productivity is below the average in both sectors – a fact which mars the favourable overall picture of the German labour market. In order to boost overall wage growth, employment would need to rise in higher- productivity sectors. However, there is already a shortage of qualified workers in certain regions, sectors and professions. — While policymakers are quite aware of potential measures to counteract this situation, the effects of such instruments will usually be felt only in the medium to longer term. Higher public and private investment in education, research and development, increased occupational training by the companies and initiatives to improve the work-life balance and labour mobility may help to remedy the situation. In order to counteract the decline in the workforce during the coming decades, immigration will need to increase and labour participation raised (further) across all population groups. This is quite ambitious, seeing that the employment rate in the age group between 15 and 64 is already very high in a long-term comparison, at 75%. German labour market in a good state At the beginning of 2005, unemployment amounted to roughly 12% in Germany and more than five million people were unemployed. If, back then, somebody had forecast that ten years later the number of unemployed would have sustainably dropped to significantly less than three millions, he would have been quite the lone caller in the desert. For much of the 1990s and right up to the beginning of the new century, one thing was typical for the German labour market: natural unemployment increased after each downturn. This did not change until the middle of the past decade, when the labour-market reforms of the “Agenda 2010” took hold. Strong global growth, which continued up until the beginning of the economic and financial crisis in autumn 2008, helped as well. Germany, an open economy with a focus on innovative capital goods, benefited considerably from the global uptrend. In addition, moderate wage agreements helped to improve international competitiveness. Not only has German unemployment declined palpably since 2005, but labour- market participation has risen strongly as well. By end-2016, a record number of almost 44 million Germans were gainfully employed. This represents an increase of roughly 11% or more than 4 million over 2005. Even though we may have got used to a dynamic German labour market by now, the development may well be called an “employment miracle” in retrospect. While the economic and financial crisis left its traces on the German labour market and pushed the number of employees to a temporary low around the turn of the year 2009/2010, generous rules on short-time work ensured that the dip was short-lived. Since 2010, labour-market participation in Germany has 2 3 4 5 6 5 7 9 11 13 03 05 07 09 11 13 15 17 Unemployment rate*, % (left) Unemployed persons**, m (right) German labour market in good shape 1 Unemployment rate and number of unemployed people in Germany, seasonally adjusted * Measured by total civil labour force ** Registered at employment agencies Sources: Deutsche Bundesbank, Federal Employment Agency Positive signs 7 | May 5, 2017 Focus Germany risen by more than 6%. The seasonally adjusted unemployment rate is currently below 6%. The employment rate of the age group between 15 and 64 rose from just above 65% in 2005 to almost 75% in 2016. Within this group, the share of part-time workers increased from 23.4% in 2005 to 26.7% in 2016. 2 At 960,000, the number of vacancies is currently high in a long-term comparison. Different developments at the sector level – services employ more people We will now analyse which sectors have made major contributions to the raise in German employment and which have seen employment grow at a below- average rate. For reasons of data availability, the degree of aggregation will remain relatively high (see charts 4-6). Corporate services providers clearly were the sector in which employment rose most, namely by 36% between 2005 and 2016. Public-sector services providers (including healthcare and education) came second with an increase of 14%. Both sectors play a major role for employment in absolute terms as well. Taken together, they employed roughly 38% of all workers in Germany in 2016 (2005: 34.7%). In fact, almost 70% of the employment increase in absolute terms since 2005 stem from these two sectors. Interestingly, the pace of increase was relatively steady during the sample period. Only in 2009 did the number of workers employed by corporate service providers decline slightly. Employment in the trade, transport and hospitality sector and in the information and communication sector rose by 8.1% and 6.9%, respectively. In contrast, the number of employees in the financial and insurance sectors declined palpably. In 2016, it was down by about 7% from 2005. Outside the services sectors, employment in the construction sector rose by 7.7% between 2005 and 2016. However, it is still almost 15% below the average for the years 1991-2005. During the 1990s, the construction boom after the German reunification kept the number of construction workers quite high. By the mid-1990s, however, construction employment already started to decline. The renewed increase since 2005/06 marks a turnaround in the long-term trend, which was triggered by higher construction activity in the last few years. In absolute terms, manufacturing employs the biggest number of workers in Germany after public-sector services and the sector trade, transport and hospitality. In 2016, the number of employees was up by 3.6% in comparison to 2005. The recession of 2008/09 triggered particularly large fluctuations in employment in this sector. This is a significant difference between the industrial and the services sector, with the latter experiencing a steadier increase in employment. Services sector benefits from outsourcing Outsourcing, not least by the manufacturing sector, is one important reason for the steep and relatively steady increase in corporate services employment. Corporate services providers supply services to industrial companies which do not or not fully belong to the latter’s core competencies. This allows industrial 2 The quoted share of part-time workers is based on Eurostat data. German media often use a considerably higher figure. Recently, the media quoted figures of the Institute for Employment Research (IAB), according to which the share of part-time workers amounts to just below 39% in Germany. Much of the difference between the two numbers depends on whether the calculation is based on the number of all employees or on the number of those which are subject to social- security contributions. If only workers in jobs with obligatory social-security contributions are included, the ratio is lower. The figures by Eurostat and the Federal Employment Agency are currently similar (share of part-time workers in 2016: roughly 27%). The share of part-time workers is considerably higher if the calculation includes those whose jobs are not subject to social-security contributions. 38 39 40 41 42 43 44 03 05 07 09 11 13 15 Number of employees is increasing quite steadily 2 Number of employed people in Germany, seasonally adjusted, m Source: Federal Statistical Office 21 22 23 24 25 26 27 28 05 07 09 11 13 15 Share of persons employed part - time in total employment in Germany, % More part - time employees 3 Source: Eurostat 24.5 22.9 17.3 13.5 21.8 Public - sector services Trade, transport, hospitality Manufacturing Corporate services Other Many employees in public - sector services 4 Share of different sectors in total employment in Germany, 2016, % Source: Federal Statistical Office Positive signs 8 | May 5, 2017 Focus Germany companies to streamline their own value chains. Logistics services, tax or legal consultancy or engineering services are good examples. Deploying temporary workers or leasing vehicles or machinery and equipment enables industrial companies to respond more flexibly to the economic cycle. It is therefore no surprise that temp agencies, which specialise in supplying temporary workers, have had a large share in the increase in employment in corporate services between 2005 and 2016. As industrial wages are high in Germany, a flexible approach towards labour is an important factor for international success. Higher employment in the public services sector is largely due to the fact that the number of employees in the (public) healthcare sector and in nurseries and kindergartens has risen. These areas have more than compensated for the cutbacks in public administration. Employment has risen in sectors with low and sometimes declining labour productivity Overall, the German labour market is in splendid health – at least at first sight. However, all that glitters is not gold. Several factors mar the favourable overall picture. Per capita labour productivity growth has been (considerably) below the average in the two sectors where employment has risen most since 2005. In fact, per-capita productivity in the corporate services sector declined by an aggregate 15% between 2005 and 2016. And in the public services sector, it grew only by less than 1%, compared to an increase by 6% across the economy during this period. Labour productivity per employee in the manufacturing sector was up by 18%, and in the information and communications sector, which benefited from major technical progress, even by more than 60%. The decline in per-capita productivity cannot be explained by a higher share of part-time workers in these two sectors. Rather, the decline in the average number of per- capita working hours in these two sectors is largely in line with the development for the economy as a whole. Not only have corporate and public-sector services providers registered below- average productivity growth in the last few years, but also is productivity in these sectors relatively low in absolute terms. We have compared nominal gross value added in each economic sector with the total number of hours worked in that sector and found that the productivity of corporate services providers amounts only to 82.5% of the overall average. That of public-sector service providers comes in at just below 47%. In contrast, productivity in the manufacturing sector exceeds the average by almost 40%. Extensive employment growth is reaching its limits Of course, this purely monetary assessment of different types of work, which relies only on the ratio between gross value added and hours worked, does not tell the whole story and has limited informative value. The two services sectors mentioned above not only help to create efficient value chains in the industry, but also ensure that public administration, education or healthcare run smoothly. Moreover, technical progress plays a less important role for personal services than, for example, for the industry. In addition, better vocational training (for example for nursery or kindergarten teachers) will not increase labour productivity by much. For these two reasons, gross value added growth will always be lower in these sectors than in the industry. Nevertheless, the figures above show that much of the increase in German employment took place in relatively unproductive sectors. This applies both to developments in the last few years (change in labour productivity per employee over time) and to current productivity in absolute terms. 90 100 110 120 130 140 05 07 09 11 13 15 Total Employees Manufacturing Trade, transport, hospitality Coporate services Public - sector services Corporate services: Strong increase in employment 5 Number of employees in selected sectors in Germany, 2005=100 Source: Federal Statistical Office 80 100 120 140 160 180 05 07 09 11 13 15 Total Employees Manufacturing Trade, transport, hospitality Information and communication Coporate services Public - sector services Source: Federal Statistical Office Divergent development 6 Labour productivity per employee in selected sectors in Germany, 2005=100 Positive signs 9 | May 5, 2017 Focus Germany In addition, the average number of hours worked per capita declined in all sectors apart from information and communication. The total of hours worked rose less quickly than the number of employees between 2005 and 2016 (+6.8% and +10.6%, respectively). This shows that the German labour market was characterised by extensive growth in the last few years. For several reasons, it will probably become difficult to maintain this extensive growth in the coming years. First, the employment rate is already quite high in Germany. At 74.5% (persons aged 15-64), it is considerably above the EU average (66.5%). While it is, of course, possible to increase the employment rate further, for example among foreigners, women or people aged above 65, the overall potential is limited. In absolute terms, the German workforce will decline over the coming years unless there is massive immigration. According to a study by the Federal Statistical Office, at least 400,000 persons would have to migrate to Germany in net terms to keep the workforce constant in the long run. 3 And this already assumes a higher participation rate among women, older workers and immigrants themselves. The latter is a challenge, in particular if many of the immigrants are refugees. Longer working lifetime might also help to counteract the decline in the workforce. However, raising the retirement age above 67 currently does not figure prominently on the political agenda; in addition, a higher share of older workers might dampen labour productivity in individual sectors. Longer weekly working hours would be another option. However, this does not appear to be the silver bullet either, seeing that the long-term trend in working hours clearly points downwards. It is unlikely that this development was initiated mainly by employers. Rather, it seems that it reflects many employees’ desire to reduce their weekly working hours. Conclusion and outlook The German labour market is in good health. High employment and low unemployment rates have fuelled domestic contribution to GDP growth over the last few years and brought relief for the social security system. The labour- market development appears particularly favourable in comparison to the dramatic situation in 2005. Compared to most other EU member states, the German labour market also appears to be in good state. However, the bright overall picture is marred by the fact that much of the increase in employment during the last few years took place in sectors with below-average productivity. In addition, the number of hours worked rose less strongly than that of employees (more part-time employment). From the individual vantage point, a higher share of part-time employment probably reflects employees’ preferences. Nevertheless, it dampens the favourable effect on the economy as a whole. In addition, we have shown that extensive employment growth will probably come to its limits in the next few years. In order to boost overall wage growth, employment would need to rise in higher- productivity sectors (intensive employment growth). However, this is not easy to achieve. In fact, there is already a shortage of labour in certain regions, sectors and professions. This development is likely to be intensified due to demographic developments and the newly introduced retirement at 63. While policymakers are quite aware of potential measures to counteract this situation, the effects of such steps will usually be felt only in the medium to longer term. Higher public and private investment in education, research and development, increased occupational training by the companies and initiatives to improve the work-life balance and labour mobility may help to remedy the situation. In order to 3 See Fuchs, Johann and Alexander Kubis (2016). Need for immigration and supply of labour until 2050. Federal Statistical Office. WISTA. Special Issue Labour Market and Migration. Wiesbaden. 0 20 40 60 80 Manufacturing Total employees Corporate services Public - sector services Trade, transport, hospitality High specific gross value added in manufacturing industry 7 Source: Federal Statistical Office * Ratio of gross value added in each economic sector to total number of hours worked in that sector Gross value added per working hour* in selected sectors in Germany, EUR, 2016 0 20 40 60 80 SE NL DE UK CZ AT FI EU HU PL FR BE ES IT High employment rate in Germany 8 Employment rate in the age group between 15 and 64, 2016, % Source: Eurostat Positive signs 10 | May 5, 2017 Focus Germany counteract the decline in the workforce during the coming decades, immigration will need to increase and labour participation raised (further) across all population groups. Interestingly, qualified labour is scarce in several social-sector professions, such as healthcare, where productivity tends to be lower. This is probably to a large extent due to the relatively low wage level in these sectors. Society will therefore need to answer the question how much it is prepared to pay for these activities – and productivity alone is probably not a good measure. As we have explained at the beginning of this article, the positive development of the German labour market appeared highly unlikely in 2005. Today, we should be careful not to take a dynamic or at least robust German labour market as a given. First, the global economic environment might deteriorate. Second, labour-market regulation looks set to play a major role both in the upcoming electoral campaign and after the elections. It is not unthinkable that some of the labour-market reforms of the “Agenda 2010” might be repealed. Eric Heymann (+49 69 910-31730, eric.heymann@db.com) Florian Schneider Positive signs 11 | May 5, 2017 Focus Germany The view from Berlin European and international policy agenda still supersedes the election campaigns Despite less than five months to go for the federal election (September 24), the parties‘ campaigning is still with reduced momentum. After the spike in the support for the SPD following the nomination of Martin Schulz as SPD candidate earlier this year, polls have seen some corrections. The CDU/CSU currently leads with about 5ppt in the average of polls over the SPD while the weakening of the smaller parties – above all the Greens – continues. Also, Schulz’ overtaking Merkel in terms of popularity and preferred chancellor has been reversed. Currently, 50% of Germans would back Merkel vs 37% for Schulz (ARD Deutschland-Trend April 2017). However, it is likely to remain a close call until the final election date. One reason for the current lacklustre political campaigns might be that major challenges for Germany’s political leadership come from beyond the borders, above all European politics, just to mention revitalising the German-French relationship, managing Brexit or orchestrating a European response to migration and the development in Turkey. In all those areas, there is more consensus than differences in substance between the major parties (as well as the Greens and the FDP) which share a broad pro-EU approach and the mindset that Germany should exert leadership foremost in cooperation with its EU partners. This is very much in line with the pro-European public opinion. Only 14% of the Germans think that the EU membership’s disadvantages outweigh its positive impact compared to 26% in France, e.g. (survey published in the FAZ on April 26). A pro-European, reform-minded new French President will be welcome in Germany The relationship to France is top of Germany’s (European) agenda. Despite the enlargements of the last decades the German-French relation remains essential for European integration and the euro area in particular. This is not only founded on the mutual importance as trade partners – in particular for the German Mittelstand France remains the major export destination – but also on their role in jointly preparing and driving European initiatives. This rationale is predominant in the German public where 92% regard the French elections as important or very important for the future of Europe. According to various polls there looks to be a strong likelihood that the pro- European, reform-minded Emmanuel Macron will be elected French president in the May 7 run-offs. Any new German government would be welcoming France’s efforts to rebuild a more balanced economic and political partnership. There is a strong overlap in Macron’s policy ideas for Europe such as securing the Schengen area while strengthening external border controls and developing a common asylum policy or closer cooperation in defense issues. However, his proposals for the euro area such as a euro area budget and a euro area parliament are less likely to be supported by Germany, limiting prospects for a far-reaching Franco-German deal on rebalancing the euro area. It also remains to be seen whether Macron’s criticism of Germany’s current account surplus was more than just campaign rhetoric. Finally, a possible French president Macron still has to win a backing majority in the June parliamentary election. The outcome of the first round of the presidential elections and the combined votes for the far right and the far left candidates indicate stronger uneasiness 0 5 10 15 20 25 30 35 CDU/CSU SPD Greens Left AfD FDP Others * Average of major surveys (Allensbach, Infratest Dimap, Forsa, Forschungsgruppe Wahlen, TNS Emnid) Source: Wahlrecht.de Major political parties' popularity on the federal level* 1 Surveys published from mid - to end April 2017, % 0 5 10 15 20 25 30 35 40 45 CDU/CSU SPD FDP Greens Left Party AfD German parties' popularity 2 Results of the Allensbach survey, % Source: IfD Allensbach * Result of the federal election on September 22 Positive signs 12 | May 5, 2017 Focus Germany with the EU and France’s membership than can be observed in Germany. This might constrain joint moves in European politics. Consensus among the major parties with regard to Germany’s position in the Brexit negotiations With regard to the Brexit negotiations many observers expect Germany to pressure its European partners into a soft Brexit agreement given the business interest of the German industry. However, despite the close trade and investment links to the UK the German government has made clear from the beginning that its major concern is to protect the overall integrity of the single market and not allow for sector specific cherry-picking. Last weekend, the EU27 agreed the political guidelines on a special summit. They have confirmed the sequenced approach to the talks: The first phase will prioritise matters that are necessary to ensure an orderly withdrawal of the UK from the EU. This includes above all the issue of citizens’ rights, budgetary matters and the situation of goods placed on the market before as well as ongoing procedures. If the European Council agreed that sufficient progress has been achieved negotiations would proceed to the second phase. This will address the overall understanding with the UK on the framework for the future relationship and possible bridges towards such a new framework, i.e. transitional arrangements under the withdrawal agreement. In terms of the timeline the major decisions during the exit talks will have to be taken by the new German government. However, the current government’s position on Brexit is shared also by the Green party and the Liberals and enjoys strong supported by the German industry as well as the German public (82% are against significant or even any concessions for the UK). Thus, the autumn elections will not change Germany’s role in the process. Mutual benefits from a constructive relationship with Turkey Not only in Germany does migration remain a point of concern for the public. Due to the closure of the Balkan route, a more restrictive asylum policy stance and the EU-Turkey Agreement in effect since March 2016, the refugee influx into Germany has declined substantially. In Q1 2017 only about 44,000 refugees were registered in Germany compared to 174,000 in Q1 2016 and even 515,000 in Q4 2015 (figures for 2015 and 2016 from the EASY system which might include double count). But as Germany has pushed through the EU-Turkey Agreement any failure would be assigned to the current German government and Chancellor Merkel in particular. The question marks behind the agreement have increased after the recent referendum in Turkey as statements by the Turkish Minister for EU Affairs indicate 4 . The Minister announced that already this month Turkey will lay out a proposal for visa-free travel for Turks and that he expects the relevant EU actors to agree to it. However, so far neither the German government nor the European Commission has commented on the statement. Both actors have also ignored calls from the European Parliament and from German politicians – including grandees from the Bavarian CSU, the sister Party of Merkel’s CDU – to stop the EU’s accession talks with Turkey, albeit this would be welcomed by the German public, too. Further deteriorations of the relationship would be problematic for both sides. From Germany’s and the EU’s perspective Turkey plays an important role not only as host for Syrian refugees but also as NATO partner in a geopolitically important region. And Turkey gets substantial funds from the EU. To support the country the EU has pledged the EU Facility for Refugees in Turkey in the amount of EUR 3 bn for 2016 and 2017 and promised EUR 4.45 bn in the 4 Reuters 23 April 2017, https://www.rt.com/news/385732-turkey-refugee-deal- suspend-visas/ 0 50000 100000 150000 200000 GR IT Source: UNHCR Sea arrivals in Italy and Greece 3 0 50000 100000 150000 200000 Asylum applicatitions* Refugees** * First time applications; **until Dec. 2016 preliminary registrations in the EASY system which might include double count Asylum applications & registered refugees in Germany 4 Sources: BAMF, BMI 0 10 20 30 40 50 60 70 abandon wait and see continue Percentage of those asked, % The Germans' attitude on the EU accession talks with Turkey 5 Source: Forschungsgruppe Wahlen, ZDF Politbarometer (April 28, 2017) Positive signs 13 | May 5, 2017 Focus Germany period 2014 to 2020 as support in the context of the accession talks. So far out of the Facility more than half has already been contracted. From the more vague support funds only EUR 167 m have been disbursed but additional approx. EUR 1 bn have been pledged for concrete projects. Other funds are conditional on reforms in Turkey. The G20 summit will also deflect the public attention from domestic issues The above mentioned examples are by no means exhaustive. They indicate, though, that the election campaigns on European politics will be much less controversial than we have seen in other EU partner countries. In France, the presidential run-off plots two extreme views on the country’s future and European integration, for example. Albeit the G20 summit in Hamburg on July 7/8 will also deflect the public attention from domestic issues, it will be more the domestic agenda with topics such as social equality and internal security that is likely to dominate the more heated phase in the election campaign further down the road. Until then, the state election in Schleswig-Holstein on May 7 and the imminent election in North Rhine-Westphalia on May 14 might serve as a substitute for testing political positions and parties’ performance. State election in North Rhine-Westphalia deserves closer attention Especially the election in North Rhine-Westphalia (NRW), Germany’s most populous state with 13.1 million eligible voters, i.e. 21% of the total German electorate, is said to be a litmus test for Germany’s major parties. Commentators will primarily be eager to see whether the SPD’s recent upswing has really come to a standstill as indicated by the latest polls as well as by the result of the Saarland election on March 26. NRW is a traditional SPD stronghold. Since 2010 the popular MP Hannelore Kraft leads an SPD-Green coalition government. NRW is also the home state of Martin Schulz who has been very engaged in his party’s state election campaign. In line with Schulz’ ideas Kraft is primarily campaigning for “social justice”, support for families with children and increased public investment in infrastructure, especially in education. However, NRW still suffers from relatively weak economic growth and difficulties to master the structural change from Germany’s former centre of coal mining and heavy manufacturing to a modern service oriented economy. In NRW average real GDP growth has only reached 1.4% p.a. since 2010 compared to 2% p.a. for the German economy in total. In addition, the CDU has tried to leverage the sensitive issue of internal security in its election campaign. This might explain the conservatives’ strong upswing in recent polls in the aftermath of the bomb attack on the bus of the Dortmund soccer team. However, it remains to be seen whether the CDU will really come in on par with the SPD on May 14. Failure of the SPD to secure its premiership would cast severe doubts over Schulz’ prospects to seriously challenge Merkel. Barbara Böttcher (+49 69 910-31787, barbara.boettcher@db.com) Dieter Bräuninger (+49 69 910-31708, dieter.braeuninger@db.com) NW 13.1 BV 9.5 BW 7.8 LS 6.1 HE 4.5 SA 3.3 RP 3.1 B 2.5 SH 2.3 Others 9.4 Regional breakdown of the eligible voters in Germany* 6 m, 61.5 million in total * NW North Rhine - Westphalia, BV Bavaria, BW Baden - Wuerttemberg, LS Lower Saxony, HE Hesse, SA Saxony, RP Rhineland - Palatinate, B Berlin, SH Schleswig - Holstein Sources: Federal Statistical Office, Deutsche Bank - 1 0 1 2 3 4 5 6 7 8 2010 2011 2012 2013 2014 2015 2016 Germany Baden - Wuerttemberg Bavaria Schleswig - Holstein North Rhine - Westphalia %, yoy Source: Federal Statistical Office Real GDP growth in selected German federal states 7 Positive signs 14 | May 5, 2017 Focus Germany DB German Macro Surprise Index The DB German Macro Surprise Index compares published economic data with market forecasts and thus provides clues as to the direction of future forecast revisions. 5 Updated by Jochen Möbert (+49 69 910-31727, jochen.moebert@db.com) Source: Heiko Peters (2014). DB German Macro Surprise Index. Focus Germany, 4 August 2014. Last 20 published economic data for Germany DX Bloomberg TickersIndicator Reporting month Publication date Current value Bloomberg consensus Surprise Standardised surprise Quantile rank GRZEWI IndexZEW Survey Expectations3 201714/03/201712.813.0-0.20.00.5 GRIFPBUS IndexIFO Business Climate3 201727/03/2017112.4111.11.30.80.8 GRIMP95Y IndexImport Price Index (% yoy)2 201729/03/20177.47.00.40.60.9 GRUECHNG IndexUnemployment Change (000's mom)3 201731/03/2017-29.0-10.019.00.50.7 GRFRIAMM IndexRetail Sales (% mom)2 201731/03/20171.10.70.40.60.7 MPMIDEMA IndexMarkit Manufacturing PMI3 201703/04/201758.358.30.00.00.5 MPMIDESA IndexMarkit Services PMI3 201705/04/201755.655.60.00.00.5 GRIORTMM IndexFactory Orders (% mom)2 201706/04/20173.44.0-0.6-0.30.4 GRCAEU IndexCurrent Account Balance (EUR bn)2 201707/04/201720.419.11.30.00.5 GRIPIMOM IndexIndustrial production (% mom)2 201707/04/20172.2-0.22.42.11.0 GRZEWI IndexZEW Survey Expectations4 201711/04/201719.514.84.70.60.8 GRZECURR IndexZEW Survey Current Situation4 201711/04/201780.177.52.60.30.6 GRCP20YY IndexCPI (% yoy)3 201713/04/20171.61.60.00.20.3 MPMIDESA IndexMarkit Services PMI4 201721/04/201754.754.70.00.00.5 GRIFPBUS IndexIFO Business Climate4 201724/04/2017112.9112.40.50.20.6 GRCP20YY IndexCPI (% yoy)4 201727/04/20172.01.90.10.80.8 GRFRIAMM IndexRetail Sales (% mom)3 201728/04/20170.10.00.10.30.6 GRIMP95Y IndexImport Price Index (% yoy)3 201728/04/20176.16.5-0.40.00.4 MPMIDEMA IndexMarkit Manufacturing PMI4 201702/05/201758.258.20.00.00.5 GRUECHNG IndexUnemployment Change (000's mom)4 201703/05/2017-15.0-11.04.0-0.10.5 Sources: Bloomberg Finance LP, Deutsche Bank Research -0.5 -0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 14 15 16 17 DB German Macro Surprise Index +/ - 1 standard deviation DB German Macro Surprise Index Average of last 20 z-scores of data surprises Values above (below) 0 indicate the data came in better (worse) than expected Sources: Bloomberg Finance LP, Deutsche Bank Research Positive signs 15 | May 5, 2017 Focus Germany German Export Indicator The E xport Indicator identif ies the effects on German exports of changes in global demand on the one hand, and currency movements on the other (price impact) . 6 Oliver Rakau (+49 69 910-31875, oliver.rakau@db.com) 6 See for details Focus Germany, March 3, 2016. Positive signs 16 | May 5, 2017 Focus Germany Dieter Bräuninger (+49 69 910-31708, dieter.braeuninger@db.com) Oliver Rakau (+49 69 910-31875, oliver.rakau@db.com) Germany: Events of economic-, fiscal- and euro-politics DX Date Event Remarks 7 May State election in Schleswig - Holstein At present it seems to be open whether the present SPD, Greens and SSW government coalition will get the majority of seats in the state parliament again. If the AfD as well as the Left will manage to pass the 5% threshold a grand coalition might be the only option granting the prospect for political stability. 14 May State election in North Rhine - Westphalia Following an interim high in the aftermath of Martin Schulz' nomination as SPD frontrunner in the federal election campaign the SPD's popularity ratings in NRW have declined again, according to recent polls. With regards to the colours of the new government coalition in NRW it will be important whether the Greens and the Left will ma nage to pass the 5% threshold and get seats in the new parliament. 22 - 23 May Eurogroup and ECOFIN, Brussels Debates on economic situation in the euro area – Commission spring forecast, Inflation developments, national insolvency frameworks. 8 June ECB Governing Council meeting, press conference, Tallinn Our baseline ECB call remains unchanged: we expect forward guidance to be adjusted in June, tapering to be pre - announced in September and a one - off deposit rate hike in December. 15 - 16 June Eurogroup a nd ECOFIN, Brussels (Poss.) Implications of the spring forecast for EDPs/EIPs for euro area countries, thematic discussion on growth and jobs – quality of public finances, (poss.) Greece – state of play, Banking Union, preparation of the June European Coun cil among others. 16 - 18 June The Greens party convention, Berlin Final debates on the party' election platform and launch of the programme. 22 - 23 June European Council, Brussels Debates on the future of the EU and (poss.) on the Brexit negotiations. 25 June SPD, special party convention, Dortmund Adoption of the party's election programme which is very likely to focus on "social justice". 28 June CDU/CSU (t.b.c.) Final debates on the sister parties' joint election platform and launch of the programm e which is likely to include an Agenda 2025 for the creation and preservation of jobs. (Date not yet officially confirmed.) 7 - 8 July G20 Summit, Hamburg Debates on international economic, fiscal policy and trade policy issues, among others. The G20 summit will attract special attention as it is the first such event that US President Trump will visit. 20 July ECB Governing Council meeting, press conference Review of monetary policy stance (see above June 8). Source: Deutsche Bank Research Germany: Data calendar DX Date Time Data Reporting period DB forecast Last value 8 May 2017 8:00 New orders manufacturing (% mom, sa) March 0.5 3.4 9 May 2017 8:00 Industrial production (% mom, sa) March - 0.8 2.2 9 May 2017 8:00 Trade balance (EUR bn, sa) March 20.3 21.2 9 May 2017 8:00 Merchandise exports (% mom, sa) March - 0.5 0.9 9 May 2017 8:00 Merchandise imports (% mom, sa) March 0.5 - 1.6 12 May 2017 8:00 Real GDP (% qoq) Q1 2017 0.4 0.4 23 May 2017 8:00 Real GDP (% qoq) - Details Q1 2017 0.4 0.4 23 May 2017 10:30 ifo business climate (Index, sa) May 111.5 112.9 24 May 2017 9:30 Manufacturing PMI (Flash) May 57.5 58.2 24 May 2017 9:30 Services PMI (Flash) May 54.7 54.7 30 May 2017 14:00 Consumer prices preliminary (% yoy, nsa) May 1.9 2.0 31 May 2017 8:00 Retail sales (% mom, sa) April 0.2 0.1 31 May 2017 10:00 Unemployment rate (%, sa) May 5.8 5.8 Sources: Deutsche Bank Research, Federal Statistical Office, Federal Employment Agency, ifo, Markit Positive signs 17 | May 5, 2017 Focus Germany Financial Forecasts DX US JP EMU GB CH SE DK NO PL HU CZ Key interest rate, % Current 0.875 - 0.10 0.00 0.25 - 0.75 - 0.50 0.05 0.50 1.50 0.90 0.05 Jun 17 1.125 - 0.10 0.00 0.25 - 0.75 - 0.50 0.05 0.50 1.50 0.90 0.05 Sep 17 1.375 - 0.10 0.00 0.25 - 0.75 - 0.50 0.05 0.50 1.50 0.90 0.15 Dec 17 1.375 - 0.10 0.00 0.25 - 0.75 - 0.50 0.05 0.50 1.50 0.90 0.25 3M interest rates, % Current 1.17 0.06 - 0.34 0.32 Jun 17 1.48 0.05 - 0.30 0.40 Sep 17 1.73 0.05 - 0.30 0.40 Dec 17 1.73 0.05 - 0.30 0.40 10J government bonds yields, % Current 2.31 0.02 0.31 1.08 Jun 17 2.25 0.05 0.45 1.25 Sep 17 2.50 0.03 0.60 1.50 Dec 17 2.75 0.00 0.75 1.65 Exchange rates EUR/USD USD/JPY EUR/GBP GBP/USD EUR/CHF EUR/SEK EUR/DKK EUR/NOK EUR/PLN EUR/HUF EUR/CZK Current 1.09 112.00 0.84 1.29 1.08 9.63 7.44 9.39 4.22 312.15 26.87 Jun 17 1.08 119.00 0.83 1.30 1.04 9.39 7.46 8.90 4.38 309.80 26.00 Sep 17 1.03 122.00 0.83 1.24 1.00 9.32 7.46 8.80 4.35 310.90 26.30 Dec 17 0.95 125.00 0.79 1.20 1.00 9.25 7.46 8.50 4.40 312.00 25.50 Sources: Bloomberg Finance LP, Deutsche Bank Research Positive signs 18 | May 5, 2017 Focus Germany German data monitor DX Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Dec 2016 Jan 2017 Feb 2017 Mar 2017 Apr 2017 May 2017 Business surveys and output Aggregate Ifo business climate 107.9 108.1 110.7 111.1 111.1 109.9 111.1 112.4 112.9 Ifo business expectations 101.9 102.2 105.6 104.4 105.6 103.3 104.2 105.7 105.2 Industry Ifo manufacturing 101.9 102.5 105.3 106.1 105.3 104.5 105.9 108.0 107.7 Headline IP (% pop) - 0.8 0.3 0.1 - 2.4 2.2 2.2 Orders (% pop) - 0.8 0.1 4.2 6.1 - 6.8 3.4 Capacity Utilisation 84.5 84.8 85.7 86.0 86.0 Construction Output (% pop) - 5.3 1.9 3.1 - 2.4 - 3.2 20.7 Orders (% pop) - 0.3 - 4.2 7.9 0.4 - 0.3 2.0 Ifo construction 124.7 126.9 129.6 128.4 130.7 129.2 127.5 128.5 129.7 Co nsumer demand EC consumer survey - 3.2 - 2.5 - 1.5 - 0.6 - 0.7 0.2 - 2.1 0.2 2.8 Retail sales (% pop) - 0.2 0.5 0.8 - 0.1 0.5 - 1.0 1.1 0.1 New car reg. (% yoy) 9.4 4.2 - 0.3 6.7 3.7 10.5 - 2.7 11.4 - 8.0 Fo reign sector Foreign orders (% pop) - 2.1 1.8 3.1 4.6 - 4.6 0.0 Exports (% pop) 0.4 - 0.2 2.4 - 2.0 2.4 0.9 Imports (% pop) - 1.2 1.4 3.7 0.0 2.8 - 1.6 Net trade (sa EUR bn) 65.5 61.8 60.2 18.8 18.9 21.2 La bour market Unemployment rate (%) 6.1 6.1 6.0 5.9 6.0 5.9 5.9 5.8 5.8 Change in unemployment (k) - 26.3 - 24.3 - 32.7 - 63.3 - 20.0 - 27.0 - 16.0 - 29.0 - 15.0 Employment (% yoy) 1.2 1.2 1.3 1.5 1.4 1.5 1.5 1.5 Ifo employment barometer 108.2 109.0 111.2 110.3 111.8 110.7 110.6 109.4 111.3 Prices, wages and costs Prices Harmonised CPI (% yoy) 0.0 0.4 1.0 1.9 1.7 1.9 2.2 1.5 2.0 Core HICP (% yoy) 1.0 1.1 1.2 1.0 1.4 1.1 1.1 0.9 Harmonised PPI (% yoy) - 2.6 - 1.7 0.2 2.8 1.0 2.4 3.1 3.1 Commodities, ex. Energy (% yoy) - 6.5 2.9 19.2 32.7 29.5 34.5 37.7 26.3 16.5 Crude oil, Brent (USD/bbl) 45.6 46.6 51.1 54.5 54.9 55.4 56.0 52.6 53.8 Inflation expectations EC household survey 3.6 6.2 10.0 18.9 10.8 17.3 18.9 20.6 17.4 EC industrial survey 1.7 3.0 6.2 13.0 6.3 11.4 13.8 13.8 11.7 Unit labour cost (% yoy) Unit labour cost 0.3 1.5 1.7 Compensation 2.0 2.3 2.3 Hourly labour costs 0.6 2.4 3.5 Money (% yoy) M3 7.2 6.6 5.7 6.0 5.7 5.7 5.6 6.0 M3 trend (3m cma) 7.1 7.0 5.4 5.7 5.4 5.5 5.6 5.7 Credit - private 2.7 2.6 2.9 2.9 3.1 3.0 Credit - public 9.7 - 0.1 8.9 8.9 15.5 18.4 % pop = % change this period over previous period. Sources: Deutsche Bundesbank, European Commission, Eurostat, Federal Employment Agency, German Federal Statistical Office, HW WI, ifo, Markit Positive signs 19 | May 5, 2017 Focus Germany EU Monitor Our publications can be accessed, free of charge, on our website www.dbresearch.com You can also register there to receive our publications regularly by E - mail. Ordering address for the print version: Deutsche Bank Research Marketing 60262 Frankfurt am Main Fax: +49 69 910 - 31877 E - m ail: marketing.dbr@db.com Available faster by E - mail: marketing.dbr@db.com  Large or small? How to measure bank size ..................... April 25, 2017  Who is afraid of populists? ................................ ............. March 23, 2017  Synthetic securitisation: Making a silent comeback ................................ ......... February 21, 2017  Coping with mixed feelings: What future for European trade policy? ...................... January 2 4, 2017  Rising income inequality: do not draw the obvious conclusions ................................ ... December 7, 2016  Ca sh, freedom and crime: Use and impact of cash in a world going digital ................................ November 23, 2016  Think Local: What Brexit would mean for regional and cohesion policies in Europe ......... September 30, 2016  Start - ups and their financing in Europe: Out of the woods with Capital Markets Union ........ September 29, 2016  Better budgeting in Eur ope: What can Fiscal Councils contribute? ................................ June 7, 2016  Free market in death? Europe’s new bail - in regime and its impact on bank funding ................................ ............... April 29, 2016  Higher EMU labour mobility at risk .............................. January 21, 2016  Promoting investment and growth: The role of development banks in Europe .............. December 23, 2015  Capital Markets Union: An ambitious goal, but few quick wins ...................... November 2, 2015  A profile of Europe’s populist parties: Structures, strengths, potential ................................ ........ April 28, 2015  Money market funds – an economic perspect ive: Matching short - term investment and funding needs ................................ ..................... February 26, 2015  Better off on their own? Economic aspects of reg ional autonomy and independence movements in Europe .......................... February 6, 2015  SME financing in the euro area: New solutions to an old problem ................................ . October 14, 2014  A future in the EU? Reconciling the ‘ Brexit’ debate with a more modern EU .................. September 15, 2014  Small is be autiful? Capital market funding for sub - sovereign authorities on the rise ........................... July 25, 2014  The dynamics of migration in the euro area ...................... July 14, 2014  Transatlantic consistency? Financial regulation, the G20 and the TTIP ........................ July 9, 2014 © Copyright 2017. Deutsche Bank AG, Deutsche Bank Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. 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