A look at the individual sectors: Broadly based upswing
The cyclical upswing in German manufacturing is quite broadly based. This
statement is true not only for 2017, but probably also for 2018. Electrical
engineering and pharmaceuticals are currently experiencing particularly
dynamic growth. Both sectors could increase their output by c. 5% in real terms
in 2017, thanks to considerably stronger export demand than in 2016. The same
applies to mechanical engineering, where output is likely to rise by c. 3% in
2017.
We expect all three sectors to continue on their expansion path in 2018,
even though the pace of growth is likely to slow, not least for exchange-rate
reasons. However, the macroeconomic drivers are different. Pharmaceuticals
benefit from household consumption in key markets, electrical and mechanical
engineering from the pick-up in investment activity.
Domestic output in the car industry looks set to rise by 2% in 2017 and slightly
more slowly in 2018. We expect that additional stimulus from German and
western European car demand will decline in 2018. Western European car
markets have steadily grown over the last few years, which means that sales (in
absolute terms) have reached a relatively high level (again) by now. Stimulus
from the US and China should be limited in 2018, too, as the US are already far
along in the economic cycle and car sales in China look set to grow more slowly
due to basis effects. In addition, both countries are increasingly relying on local
production of German car makers. The euro is quite firm which will additionally
weigh on exports. In the UK, the negative impact of the Brexit decision
(including a weak sterling exchange rate) is dampening both demand for cars
and German exports to the UK. It is difficult to gauge the effect of “dieselgate”
on total output volumes. Overall, demand and production have mainly shifted
towards petrol engines. Cars with alternative propulsion technologies are still
rarely used and thus play a negligible role for the current business cycle in the
auto industry.
However, alternative technologies will gain importance in the
coming years, not least because regulation will force car makers to direct their
efforts increasingly towards electric vehicles (e.g. Via ambitious CO limits for
cars in the EU or quota for electric cars in China).
EU Forecast
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