First official estimate puts unadjusted German 2015 GDP growth at 1.7%, public-sector budget surplus at 0.5% of GDP

Initial German GDP data for 2015 released by the Federal Statistical Office (FSO), which still involve a high degree of estimation for the fourth quarter, show calendar-adjusted growth of 1.5% and unadjusted (headline) growth of 1.7%, as expected. Growth in 2015 was thus similar to that in 2014 (following expansion of around just 0.5% in 2012–13), the main difference being that domestic demand played an even greater role in 2015 whereas net exports contributed only modestly to overall GDP. Furthermore, the quarterly pattern in 2014 had been quite volatile, whereas growth developed at a fairly even pace throughout 2015.

With respect to potential implications for the forthcoming fourth-quarter 2015 data ("flash" data are due to be released on 12 February), it is important to note that today's annual data release incorporates revisions to the figures for the first three quarters of 2015 that have not been disclosed; these will only be published by the FSO on 12 February. In principle, fourth-quarter growth could thus be anywhere within a broad range of at least 0.3–0.7% quarter on quarter (q/q) and still be consistent with the annual data released today. IHS now considers an outcome of 0.5% q/q to have the highest probability, which would imply some growth acceleration at the data edge.

Component breakdown shows consumption growth gaining at expense of investment

Key features of the full-year 2015 GDP data (only available without calendar adjustments, that is 1.7% for the total) are that all components contributed to growth, as in 2014, but that consumption growth almost doubled whereas investment growth halved compared with the preceding year. In addition, the contribution of net exports to GDP halved from 0.4 percentage point to 0.2 percentage point as imports accelerated to a greater degree than exports. Overall domestic demand boosted GDP by 1.5 percentage point, and final domestic demand (excluding inventory changes) even by 1.9 percentage point. This implies that a reduction in inventories dampened GDP by 0.4 percentage point. Among domestic demand components, private and public consumption contributed 1.0 percentage point and 0.5 percentage point, respectively, to GDP growth, whereas fixed investment contributed only 0.3 percentage point (down from 0.7 percentage point in 2014).

Looking at the data in greater detail, growth in real exports of goods and services picked up for the second year in a row, coming in at 5.4% after 4.0% in 2014. Growth in real imports of goods and services even accelerated from 3.7% to 5.7%. Exports thus underperformed imports modestly, although exports' persistently much higher absolute levels still led to an increasing trade surplus and thus a boosting effect on GDP growth. In 2015, German exports suffered to some degree from economic woes in many emerging markets (including a slowdown in China), but this was more than offset by improving demand in the US and the Eurozone and by higher price competitiveness versus the non-Eurozone world because of the sharply depreciating euro. Meanwhile, imports benefited not only from strengthening German consumer demand but also from improved price competitiveness (relative to Germany) in many Eurozone countries in the wake of structural adjustments. That said, growth rates of around 5.5% for Germany's external trade still pale in comparison with a pace of around 8.0% in 2011 and even around 13.5% in 2010 (then still benefiting from the recoil effect after the Lehman-related plunge of more than 10% in 2009).

Turning to domestic demand components, the robust increase of 1.9% for real private consumption in 2015 compared with growth of only 0.9% in 2014, 0.6% in 2013, and 1.0% in 2012. This doubling of consumer demand partly reflected ongoing labour market health – the level of employment reached a historical high of 43.2 million in late 2015 and the unemployment rate has declined to a post-reunification low of 6.3% recently – but the key factor in 2015 was the further drop in inflation to almost zero. German consumers regularly react in a positive manner to improvements in purchasing power. As employment and wage growth will remain solid and as the most recent further slide in oil prices will delay the anticipated rebound in inflation, private consumption growth should at least maintain a pace of 2% during 2016.

Meanwhile, government consumption growth picked up from an average of 1.0% during 2011–13 and 1.7% in 2014 to 2.8% in 2015. Having made efforts for several years to rein in public spending in order to consolidate public finances after Lehman-related deficits in 2009–10, the realisation of the need to satisfy pent-up infrastructure modernisation requirements and more recently to house and feed a surge in migrants have produced a turnaround. The "grand coalition" government that took office at the end of 2013 had already embarked on a looser fiscal policy than before, but this only became more apparent in 2015.

Fixed investment increased 1.7% in 2015, only half of the growth pace of 3.5% in 2014 but still representing a much more positive picture than in 2012 (-0.4%) and 2013 (-1.3%). The subdued pace was related to persistent political uncertainty due to geopolitical crises (Ukraine/Russia, the Islamic State threat in Iraq/Syria, and associated terrorist attacks on European soil) and the Greek saga that has only receded to the background since September 2015. Indeed, annual growth owed to an interim surge in investment in late 2014 and early 2015, whereas the second and third quarters of 2015 saw renewed declines. Counter-intuitively, investment in equipment (up 3.6% after a rise of 4.5% in 2014) did not suffer as much as construction investment (up 0.2% after 2.9% in 2014). Although rising demand for housing drove residential building activity, non-residential structural investment remained a drag and public infrastructure investment was still far from buoyant. Looking ahead, though, residential construction will enjoy a long-lasting upswing given consumers' good financial situation, historically low interest rates, and the added demand for housing due to the migrant/refugee influx.

Q4 2015 growth estimated at 0.5% q/q

The FSO does not usually make predictions about fourth-quarter GDP growth when it publishes its preliminary estimate for full-year growth for the previous year. Furthermore, as mentioned, the FSO has incorporated any revisions to the data for the first three quarters of 2015 but will not publish these ahead of the release of the fourth-quarter data due on 12 February. It is thus impossible to draw firm conclusions on the basis of the annual data released today. That said, the calendar factor of 0.25%, in conjunction with the published 2015 growth figures of 1.5% in calendar-adjusted terms and 1.7% in non-adjusted terms, suggests a "low" 1.5%. Conversely, however, improving survey indicators and orders data in recent months suggest at least mild acceleration versus the 0.4% average of the first three quarters of 2015. The mild weather in November/December (helping construction output) and the additional boost to consumer purchasing power from yet lower oil prices also point in this direction. Against this background, IHS estimates a quarterly growth pace of 0.5% q/q for the fourth quarter of 2015 and expects that this rate will be broadly maintained throughout 2016.

Average growth in 2016 will benefit from a statistical overhang effect of roughly 0.6%, meaning that even if GDP were to fail to grow at all during the year, average growth would still be 0.6%.

Public-sector finances improve to surplus of 0.5% of GDP

Separately, the FSO has also published a first estimate of the 2015 public-sector budget situation – including the social insurance system – according to Maastricht criteria. This shows a surplus of 0.5% of GDP, up from a surplus of 0.3% in 2014 and marginal deficits of 0.1% in both 2012 and 2013. This contrasts sharply with the interim deficit peak of 4.2% of GDP in 2010, caused at the time by the after-effects of the Lehman-related global downturn of 2008–09. Overall public revenues increased 3.6% y/y, whereas expenditures only increased 3.0%. Revenues continue to benefit from the boost to both taxes and social security contributions due to the healthy labour market, while expenditures, although also being boosted by legislation raising pension entitlements and by funds required to deal with the refugee crisis, have been dampened by ever-lower interest payments for public debt. Notwithstanding still growing spending on refugees in 2016, public-sector finances should at least stay in balance this year. Meanwhile, the level of debt, which had peaked at 81% of GDP in 2010 before declining to eventually 74.9% at end-2014, is estimated to have dropped to below 72% in 2015 (the FSO did not release any official figures about the debt stock today).

Outlook and implications

Looking ahead, the improvement in leading indicators (Ifo, PMI, ZEW) and manufacturing orders data during the fourth quarter argues for accelerating economic activity around the turn of this year. Yet lower oil prices are also a positive factor on balance for German growth, as is a persistently weak euro that will help exports. Finally, the European Central Bank (ECB) has made clear that it will continue to pursue a very expansionary monetary policy stance, having recently extended its quantitative easing (QE) programme until March 2017. These positive influences will be partially offset by persistent economic problems in many emerging markets around the world and by the political uncertainty stemming from large refugee flows and the rise in terrorism.

In its January forecast round (to be released shortly), IHS is predicting calendar-adjusted German GDP growth of 2.0% in both 2016 and 2017, which translates into rates of 2.1% and 1.8%, respectively, in non-calendar-adjusted terms. The underlying pace of GDP growth should thus be close to 0.5% per quarter – thus 2% annualised – during the coming quarters. All domestic components of demand will contribute to this pick-up in activity compared with 2015: private consumption, government consumption, investment in equipment, and investment in construction. As regards net exports, however, GDP growth could well be dampened by imports outpacing exports to a greater degree than in 2015.