MGCC PERSPECTIVESMAY JUN 2018 17 MARKETS AND SECTORS BUNDESBANK REPORT In its latest monthly report the Bundesbank reported that the German economy continued its robust upswing into the first quarter of this year Upswing Still Robust Source Deutsche Bundesbank www bundesbank de Economists at Bundesbank noted that industrial output in January 2018 improved by a seasonally adjusted on the month and 1 compared with the fourth quarter of 2017 The mechanical engineering sector above all registered a significant upturn in output as did repairs and installation of machinery and equipment The Bank s economists put the growth observed throughout the sector down to businesses well stocked order books New orders picked up sharply in the second half of the past year in particular they write Industry s January 2018 order intake may have eased by 3 on the month but the Bank s experts continue to take a very favourable view of the order situation in industry on the whole Construction Activity Remains Vibrant Excellent though the order situation in the main construction sector may be the construction sector s contribution to aggregate growth in the first quarter of 2018 will probably be muted at best the Bank s economists write owing to significant capacity constraints which are hindering a swift expansion of construction activity January saw production contract by a seasonally adjusted 2 on the month primarily as a result of a weakening in construction activity in the finishing trades Despite the dip in January the Bundesbank expects construction activity to remain vibrant Consumer Prices Higher in February According to Federal Statistical Office data consumer prices HICP rose by 0 1 on the month in February Services including rents increased slightly in price while energy and food prices eased marginally Consumer prices for clothing meanwhile rose distinctly The headline rate of inflation however declined from last year s 1 4 to 1 2 because food prices in February 2017 had risen sharply For March the Bundesbank s experts are expecting to see rising travel prices drive inflation sharply higher since this year s Easter holidays are earlier than they were in 2017 Strong Labour Market Momentum The Bundesbank reports that conditions in Germany s labour market are still very good at the beginning of 2018 Employment in January increased by 625 000 or 1 4 on the year The Monthly Report writes that the bulk of these new jobs are subject to social security contributions the number of which climbed by 711 000 between December 2016 and December 2017 Unemployment contracted sharply in February receding by a seasonally adjusted 22 000 to 2 39 million on the month and by 216 000 on the year In their assessment of this development the Bank s economists write The relatively strong drop in unemployment over the past few months is probably also related to the fact that unemployment among refugees stopped increasing which turned attention back to the underlying cyclical trend They also point to current indicators which suggest that unemployment will continue to recede further in the future Ph ot o by 1 23 RF

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