Germany June 2023 - FocusEconomics Consensus Forecast
OUTLOOK IS MODERATE
The economy fell into a technical recession in Q1, driven by a sustained fall in private spending. Consumers spent less on food and drinks, clothing and footwear and cars, likely as a result of high inflation. Turning to Q2, our panelists see the economy rebounding weakly. Inflation has retreated in the quarter thus far, helping to boost consumer sentiment. Retail sales rebounded in April, while services activity rose at the fastest rate since April 2022 in May. In addition, the external sector appears to be performing well, with merchandise exports up in April. That said, various data suggests ongoing weakness in the economy: Industrial output grew less in April than in Q1, and business conditions in the manufacturing sector fell to a two-year low in May, according to PMI data.
The economy fell into a technical recession in Q1, driven by a sustained fall in private spending. Consumers spent less on food and drinks, clothing and footwear and cars, likely as a result of high inflation. Turning to Q2, our panelists see the economy rebounding weakly. Inflation has retreated in the quarter thus far, helping to boost consumer sentiment. Retail sales rebounded in April, while services activity rose at the fastest rate since April 2022 in May. In addition, the external sector appears to be performing well, with merchandise exports up in April. That said, various data suggests ongoing weakness in the economy: Industrial output grew less in April than in Q1, and business conditions in the manufacturing sector fell to a two-year low in May, according to PMI data.
Since GDP figures were revised downward in late May, our panelists have downgraded their forecasts for GDP growth in 2023 by 0.3 percentage points on average. The Consensus is for GDP to fall slightly this year. Private spending will be knocked by high inflation and exports by a weak global economy. Key factors to watch include energy prices and world GDP growth. FocusEconomics panelists see GDP contracting 0.2% in 2023, which is down by 0.2 percentage points from one month ago, and expanding 1.1% in 2024.
Harmonized inflation fell to 6.3% in May from 7.6% in April as energy prices rose less. Inflation this year is set to linger above the 10-year average of 2.1% but ease compared to last year as the base effect toughens and domestic demand declines. Key factors to watch include natural gas prices and the government’s power price cap scheme. FocusEconomics panelists see harmonized consumer prices rising 6.2% on average in 2023, which is down by 0.1 percentage points from one month ago, and rising 2.9% on average in 2024.
REAL SECTOR
Industrial output rises in April Industrial production rose 0.3% on a calendar- and seasonally adjusted month-on-month basis in April (March: -2.1% c.s.a. mom). The rebound came on the back of an improvement in industrial output and mining and quarrying production. Lastly, construction sector production gained steam, while energy output dipped at a steeper pace than in the previous month. On an annual basis, industrial production increased 1.6% in April, which was below March’s 2.3% expansion. Meanwhile, the trend improved, with the annual average variation of industrial production coming in at a one-year high of 0.2% in April, contrasting March’s minus 0.2%. FocusEconomics panelists see industrial production expanding 0.3% in 2023, which is up by 0.3 percentage points from one month ago, and expanding 1.0% in 2024.
REAL SECTOR
Composite PMI deteriorates in June The HBOB Flash Composite Purchasing Managers’ Index (PMI) fell to 50.8 in June from May’s 53.9. As a result, the index remained above the 50.0 no- change mark, pointing to a continued, albeit moderating, improvement in private sector operating conditions from the previous month. The Manufacturing PMI stood at 41.0 in June, down from May’s 43.2 and a more than three-year low. Lastly, the Services PMI fell to 54.1 in June (May: 57.2), a three-month low. The print suggests that business activity is losing steam as demand weakens. In the manufacturing sector, output and new orders fell at the quickest rate in eight months, and employment rose only marginally. In the services sector, output and new orders expanded at slower paces, while employment grew at a slightly faster rate. In both sectors, respondents to the PMI survey pointed to elevated inflation and higher interest rates as the main brakes on activity. Looking at prices, in the manufacturing sector, input and output prices fell, while in the services sector, input and output prices continued to rise at a sharp pace. Finally, sentiment fell in both sectors.
