A Modest Expansion Course

In 2014, the German economy is expected to grow by 1.8 %. Next year, GDP will increase by 2.1 %. The output gap will decline significantly this year, but will only be fully closed in the coming year. Inflation will remain low in this environment.

The upward momentum of the global economy weakened slightly in the final quarter of 2013. However, developed countries were almost able to maintain their pace of expansion which was propped up mainly by private consumption. This time, the stimuli also came from corporate investment activity. In contrast, the recovery in emerging countries could not keep pace with the dynamic growth of the previous quarter. Among other things, deteriorating external financing conditions and increases in policy rates impacted growth. Globally, monetary policies will continue to be very expansive. Moreover, the contractive impact of fiscal stimulus policies will also diminish. After a weak start to the year, the rate of growth in the global economy ought to accelerate again. Over time, the continuing low rate of inflation and the gradually improving situation on the labor market will support consumption in industrialized countries. As a result, companies are likely to increase their investment activity. The economies of emerging countries will benefit from increased imports in industrialized countries. On the whole, the average annual growth rate of the global economy in 2014 and 2015 is predicted to reach 3.8 % and 4.0 %, respectively.

The German economy is experiencing an economic upturn. However, there will be no appreciable acceleration. On the one hand, the world economy will not reach the growth rates of the pre-crisis period, and the structural adjustments within the euro area have clouded the prospects of the German export economy long-term; on the other hand, the global economy is gradually gaining momentum, and uncertainties are fading. Companies in Germany are continuing to tentatively increase their investments, and are catching up on those shelved in recent years. The upward trend in the construction industry is continuing, but slowly losing momentum. The employment market will remain buoyant and wages will rise significantly. The introduction of the minimum wage will allow these trends to persist in the coming year. This will drive up private consumption which picked up momentum at the beginning of the year. Exports are gaining some ground in the context of the global economic recovery, while imports rose more significantly in the wake of increasing domestic demand. Foreign trade in net terms is not contributing to growth.

The public budget will end the year with a slight deficit, although next year will see a slight surplus in net borrowing. Without taking cyclical influences into account, the public budget in both years will end with a surplus, which will decrease, however, due to relaxed spending policies.