09.06.2016 • 22/2016
The German Economy Benefits from Strong Domestic Demand
In 2016, the moderate upswing of the German economy continues. Incomes grow due to the steady expansion in employment, and the fall in energy prices has propped up the purchasing power of private households. As a consequence, private consumption expands healthily; investment in housing is additionally stimulated by very low interest rates. Exports, however, expand only moderately, as the world economy is rather weak. All in all, the IWH forecasts the German GDP to expand by 1.8% in this year and by 1.6% in 2017.
Oliver Holtemöller
Read press release
Upturn Remains Moderate — Economic Policy Lacks Growth Orientation
Roland Döhrn, Ferdinand Fichtner, Oliver Holtemöller, Timo Wollmershäuser
Wirtschaftsdienst,
No. 5,
2016
Abstract
The German economy is experiencing a moderate upturn. Gross domestic product is expected to increase by 1.6 per cent this year and by 1.5 per cent in 2017. The upturn will be driven by private consumption, which will benefit from continued employment growth, sizeable increases in wage and transfer income, and also purchasing power gains thanks to lower energy prices. Fiscal policy will also be expansively oriented, partly due to rising costs related to refugee immigration. Public budgets will still post significant surpluses in the forecasting period, however. Failing to use this room for manoeuvre to promote growth, as seen in recent years, is not a sustainable path. In view of the continuous slack in the euro area economy, the monetary policy stance is considered to be appropriate. Should it become obvious in the course of this year that production does not return to normal capacity and that the inflation rate does not move towards two per cent, further measures to stimulate growth might become necessary. The scope for further monetary policy measures has been widely exhausted, though. A further economic stabilization could only be achieved through a combination of expansionary fiscal and monetary policy. This could severely damage the credibility of monetary policy, however.
Read article
16.03.2016 • 10/2016
German Economy Stays Stable Despite Shaky Environment
The German economy had a good start into the year 2016, in spite of heightened risks for the world economy and political turmoil in Europe. Employment and incomes are expanding, as is internal de-mand, additionally supported by government spending related to the high number of newly arrived refugees. However, sliding sentiment indicates a temporary slow down of the economy during this spring. We assume that the present political tensions inside the European Union can be mitigated in the coming months and that confidence will rise again. All in all, gross domestic product (GDP) is forecast to rise by 1.5% in 2016.
Oliver Holtemöller
Read press release
16.12.2015 • 45/2015
German Economy: Strong domestic demand compensates for weak exports
The upturn of the German economy is expected to gain further momentum as a consequence of strong domestic demand. Real gross domestic product is expected to increase by 1.6% in 2016. Consumer prices are expected to rise by 0.9%. Unemployment is expected to rise slightly because it will take time to integrate refugees into the labour market.
Oliver Holtemöller
Read press release
Assessing European Competitiveness: The New CompNet Microbased Database
Paloma Lopez-Garcia, Filippo di Mauro
ECB Working Paper,
No. 1764,
2015
Abstract
Drawing from confidential firm-level balance sheets for 17 European countries (13 Euro-Area), the paper documents the newly expanded database of cross-country comparable competitiveness-related indicators built by the Competitiveness Research Network (CompNet). The new database provides information on the distribution of labour productivity, TFP, ULC or size of firms in detailed 2-digit industries but also within broad macrosectors or considering the full economy. Most importantly, the expanded database includes detailed information on critical determinants of competitiveness such as the financial position of the firm, its exporting intensity, employment creation or price-cost margins. Both the distribution of all those variables, within each industry, but also their joint analysis with the productivity of the firm provides critical insights to both policy-makers and researchers regarding aggregate trends dynamics. The current database comprises 17 EU countries, with information for 56 industries, including both manufacturing and services, over the period 1995-2012. The paper aims at analysing the structure and characteristics of this novel database, pointing out a number of results that are relevant to study productivity developments and its drivers. For instance, by using covariances between productivity and employment the paper shows that the drop in employment which occurred during the recent crisis appears to have had “cleansing effects” on EU economies, as it seems to have accelerated resource reallocation towards the most productive firms, particularly in economies under stress. Lastly, this paper will be complemented by four forthcoming papers, each providing an in-depth description and methodological overview of each of the main groups of CompNet indicators (financial, trade-related, product and labour market).
Read article
Understanding the Great Recession
Mathias Trabandt, Lawrence J. Christiano, Martin S. Eichenbaum
American Economic Journal: Macroeconomics,
No. 1,
2015
Abstract
We argue that the vast bulk of movements in aggregate real economic activity during the Great Recession were due to financial frictions. We reach this conclusion by looking through the lens of an estimated New Keynesian model in which firms face moderate degrees of price rigidities, no nominal rigidities in wages, and a binding zero lower bound constraint on the nominal interest rate. Our model does a good job of accounting for the joint behavior of labor and goods markets, as well as inflation, during the Great Recession. According to the model the observed fall in total factor productivity and the rise in the cost of working capital played critical roles in accounting for the small drop in inflation that occurred during the Great Recession.
Read article