Both the current assessment and the expectations components of the ifo
business climate index reached all-time highs in November, with manufacturing
being the main driving force behind this increase. In December, the
manufacturing PMI (flash) reached a new record high as well. The services PMI
is still more subdued; but December’s strong rise pushed the index 2.6 points
above its historical average. Overall, however, the economic basis for 2018 is
excellent, which is why we expect growth to reach 2.3% again.
the average for the year as a whole is quite high, growth is likely to slow down in
the course of 2018. First, a lower number of working days reduces the rate for
2017 by c. 1⁄4 of a pp. In working-day-adjusted terms, growth in 2017 should
even reach 2.5 – 2.6%. In 2018, however, the number of working days is
unlikely to affect the growth rate. Second, Germany should benefit from a
growth overhang of 1% from 2017.
The slowdown of the average annualised
quarterly growth rates from 3% in 2017 to just above 2% in 2018 (i.e. A rate
which is still considerably above potential) provides a better picture of the overall
economic dynamics. The deceleration is largely caused by capacity bottlenecks,
in particular on the labour market, and by the firmer euro. Overall output is likely
to exceed its potential level (output gap) by about 2pp in 2018.
This trend will
probably act as another brake on growth, which is why the expansion looks set
to slow down to 1.8% in 2019.