German growth and employment set to continue upwards trend

Germany’s rise and rise will continue in 2017, according to Berlin’s spring economic forecast released on Wednesday, with employment levels reaching a new record and growth set to top 1.5 per cent.

It's welcome news for chancellor Angela Merkel and her ruling Christian Democratic Union (CDU) ahead of their bid to win a fourth term in September.

“The German economy is growing solidly and remains on a growth path, despite a global situation marked by imponderables,” said Ms Brigitte Zypries, federal economic minister.

The federal government spring forecast forecasts the number of people working in Germany will rise by around 840,000 in the next two years to a record 44.4 million. Meanwhile the jobless rate has held steady at six per cent, despite the large number of refugees now registered in Germany as unemployed.

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For this year Germany’s federal government has increased its growth forecast slightly to 1.5 per cent, with 1.6 per cent growth likely next year. Further positive effects are likely from the construction industry, as ECB low interest rates fuel an ongoing housing boom in Germany, both in private and social housing.

Effect

The rising growth and work force will have a positive knock-on effect on private consumption, the forecast notes, with private spending set to rise this year and in 2018 by 1.4 per cent.

Higher domestic spending and a slightly higher oil price means Germany's trade surplus – a bone of contention with Brussels, its EU partners and now the Trump administration – is likely to fall from 8.3 per cent of gross domestic product this year to 7.3 per cent in 2018.

The value of Germany’s exports has been higher than its imports since 2002, reaching a high of 8.6 per cent in 2015. The EU sees anything above six per cent as a problem and has demanded Germany do more to boost domestic demand.

But Germany’s economic mainstream thinking, which foresees only a very limited role for the state in economic stimulation, has framed the budget surplus very differently: as proof of the quality of German products, shrugging off criticism as sour grapes from less successful rivals.

Data

While Dr Merkel and her CDU allies have presented the bumper economic data as an argument for four more years at the rudder, the data may strengthen the hand of Dr Merkel’s junior grand coalition partner, the Social Democratic Party (SPD).

Its frontman Martin Schulz, hoping out oust Dr Merkel as chancellor in September, has promised voters a multi-billion spending programme to tackle a public infrastructure neglect which he paints as the legacy of the CDU's austerity-heavy push for a balanced budget.

With a nod to the election battle to come economist minister Brigitte Zypries, a senior SPD figure, said more needed to be done to ensure growth “benefitted everyone, so that life in Germany is fairer”.

That echoes Mr Schulz’s key campaign promise: a fairer deal for “the people who keep the lights on” in Germany.

After 27 years inside the bubble of federal politics, including 12 as chancellor, Mr Schulz argues that Dr Merkel is out of touch with ordinary people’s daily problems.