Domestic economic resilience in the face of tough global conditions.
Despite a challenging international context, Germany remains on a robust growth path. Against the background of geopolitical crises in the Ukraine and Middle East, terrorism, uncertainty about Greece, a massive influx of refugees, and Brexit, the German economy has grown at a solid annual pace of roughly 1.5% since late 2014. German GDP growth continues apace, driven primarily by domestic demand as net exports have essentially ceased to contribute since 2013. The purchasing managers’ index (PMI), which experienced setbacks in late 2015 and in mid-2016 after the Brexit vote, has since rebounded to levels indicative of healthy economic expansion. The German economy enjoys a high degree of international competitiveness and, more importantly, persistently robust consumer demand resulting from real income and labor-market developments. However, the boost to purchasing power from oil price declines during November 2015-January 2016 has partially unwound since, and rising inflation is expected to weaken real income growth. Nevertheless, the euro’s 20% depreciation against the US dollar since mid-2014 has helped German exports, while the European Central Bank (ECB)’s extreme easing course has supported investment via favorable financing conditions.