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Macroeconomic conditions

The German economy got off to a very dynamic start in 2011, playing the role of Europe’s economic engine for a considerable period. However, the escalation of the sovereign debt crisis in Europe and growing uncertainty meant that Germany’s economy also began to falter from autumn onwards. Real (price-adjusted) gross domestic product (GDP) rose by 3.0% in 2011 (previous year +3.7%). Adjusted for the differing number of working days (calendar adjusted), real GDP grew by 3.1% (previous year 3.6%).

The German economy thus continued the previous year’s recovery on a broad front in 2011. Over the course of the year, the momentum shifted from exports and equipment investments to private consumption. Investment in construction (particularly in commercial and residential developments) was also encouragingly high. The country’s budgetary situation was better than anticipated in 2011, due to very low interest rates and higher tax receipts.

The German labour market continued to recover in 2011 as a result of the positive economic development, reaching a new record level of 41.582 million employed in November. According to information provided by the Federal Employment Agency, an average of 2.976 million people were registered as unemployed during the year, some 263,000 or 8% less than in the previous year. The annual average unemployment rate fell from 7.7% to 7.1%. Using the internationally comparable ILO (International Labour Organisation) methodology, the unemployment rate in German fell by 1.1% to 5.5% from December 2010 to December 2011.

According to information provided by the German Bundesbank, gross pay per employee rose by 3.4% in 2011, the biggest increase since 1993. Against a background of high employment and low interest rates, the propensity to consume continued to rise. The savings rate fell in 2011 to 10.9% of disposable income (2010: 11.3%). Private consumer spending, which accounts for half of GDP, rose by a nominal 3.6% in 2011 (real: +1.5%). Spending on transport and communications in particular rose sharply by 7.8%, which in part reflects the significant rebound in car sales over the year.

As measured by the consumer price index, the cost of living in Germany rose by 2.3%, a further increase in the rate of inflation compared with the previous years (2010: +1.1%, 2009: +0.4%) Inflation was above 2% in each month, thus lying slightly above the target set by the European Central Bank (ECB) of just under 2% p.a. The main driver of this higher rate of inflation was energy. The price of heating oil and other fuels rose by 13.9% in 2011, while that of household energy (including electricity and gas) increased by 9.5%. Stripped of the effects of higher energy costs, inflation was only 1.3%. Food prices, which rose by 2.8%, were also a driver of inflation. On the other hand, prices for clothing and footwear (+1.8%), rents (+1.2%) and personal care (0.5%) rose only moderately. The downward trend in prices for communication (-2.7%) continued in 2011.

Economies performed very differently within Europe in 2011. On the one hand, countries badly affected by the sovereign debt crisis slid into recession. On the other, along with a few smaller member states, it was the two major economies of France and especially Germany that underpinned economic development in Europe. The economic outlook has deteriorated perceptibly over the course of the year. Economic output contracted in the final quarter of the year (EU and eurozone by -0.3% each). Compared with the previous year, economic growth was nevertheless positive in 2011 with increases of 1.5% in the EU and 1.4% in the eurozone thanks to the strong start to the year, only 0.5 percentage points lower than 2010. The upward trend in prices has accelerated in Europe, with inflation rising on an annual average from 2.1% to 3.1% for the EU and from 1.6% to 2.7% for the eurozone. As a consequence of the problems in the euro crisis countries, the seasonally-adjusted number of unemployed rose by 751,000 to 16.469 million over the year to December 2011. Using the ILO method, the unemployment rate rose from 10.0% to 10.4%.

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