Economic Forecasts Going for Growth, Hunting New Jobs

The German economy is in good shape, but one measure suggests businesses may hire less people this year. Many companies warn that the government must cut red tape if it wants to see continued job creation.
My ship comes sailing in.

Germany faces the new year with a strong economy and strong workforce, but must make sure job creation does not slow down.

The government’s annual economic forecast, published Wednesday, expects 1.7 percent real GDP growth for 2016, while the Federation of German Industry (BDI) predicts an even higher 1.9-percent real growth for the German economy.

Both forecasts are impressive considering that, over the last decade, Germany has averaged annual GDP growth of only 1.3 percent, according to the Federal Statistical Office.

Unemployment is at its lowest level since German reunification in 1991 and, according to the German government's forecast, will remain at 6.4 percent this year. In fact, the report predicts that the working population will actually increase in 2016 to a new record of 43.4 million people. Real gross wages and salaries per worker rose more sharply in 2015 than in the past 20 years.

Sigmar Gabriel, the German economics minister and vice chancellor, who presented the annual forecast, said the report showed that "the German economy is in good shape, and people are benefiting from this prosperity.”

An open letter, published by a business lobby group calling for lighter regulation, warns that government red tape is harming job creation.

Not everyone is quite as optimistic, however. One survey suggests jobs will not expand as strongly in 2016 as they did in 2015, while Germany's business lobby, the DIHK, warned that global risks could still undermine Europe's largest economy and its exports in the coming year.According to the government's report, the influx of refugees will have only a minimal effect on the labor market in the first months of the year.

The report also named five areas the government intends to focus on by increasing spending: expanding high-speed Internet, securing power generation, education, integrating immigrants and the public and private infrastructure.

Mr. Gabriel added that economic conditions have been boosted by extremely low oil prices, favorable exchange rates, and easily available financing: the forecasts assume an interest rate of 0.05 percent and Brent crude oil price of $34 (€31).

But Martin Wansleben, chief executive of the Association of German Chambers of Industry and Commerce (DIHK), was more pessimistic about the country’s prospects. "With all due respect to the confidence of the federal government, quite a few things would need to go smoothly in 2016 to achieve 1.7 percent growth," he said.

He pointed out the many crises in the world at the moment, and noted that China is now beginning to weaken, following slumps in Russia and South America. The German government also predicts a decline in German trade with the rest of the world in 2016.

 

Germany Economy GDP exports imports workforce unemployment 2015 and 2016

 

Mr. Wansleben said the government had to “actively promote an innovative, reliable environment for businesses," to secure growth.

There are already signs that Germany’s renowned jobs market may be in danger.

At the moment, the numbers are good. Based on the annual average, fewer people were unemployed in 2015 than in every year since 1991. Despite the legal minimum wage, there are now 600,000 more jobs requiring social insurance contributions than last year. And companies' willingness to hire people continues, albeit to a somewhat lesser degree.

But data from the Munich-based economics institute IFO, produced exclusively for Handelsblatt, paints a slightly more nuanced picture. Its employment barometer, which measures the health of the jobs market, dropped to 109.7 points in January, down from 110.5 points in the previous month.

Within the headline number, there are more concerns: The barometer's manufacturing index has declined to its lowest value in more than a year, which means that businesses there are holding back with new hiring. The service sector and retail continue to grow, by contrast, but Ifo researcher Klaus Wohlrabe warned that the indicators show that employment in the construction industry, in particular, could slow down.

An open letter, published by a business lobby group calling for lighter regulation, warns that government red tape is harming job creation.

 

For the economy, the situation is looking up.

 

The letter, organized by the The Intiative Neue Soziale MarktWirtshaft, and signed by 90 business leaders, called on German Chancellor Angela Merkel to refrain from its planned regulation of temporary employment and contracts for services.

Ms. Merkel is part of the center right Christian Democrats, who have tended to be more market friendly, but her administration has imposed several new regulations on companies, reducing the retirement age for long term employees to 63, and imposing a minimum wage, which the signatories of the letter desctive as a “bureaucratic nightmare.”

 

Dana Heide is a correspondent for Handelsblatt in Berlin, focusing on energy policies, small and medium-sized companies and innovation. Frank Specht is based at Handelsblatt's Berlin bureau, where he focuses on the German labor market and trade unions. To contact the authors:  [email protected] and [email protected]