Our figure of the month 01/2020: Outlook 2020


At 0.50% of the price-adjusted domestic product, 2019 has performed significantly worse than forecast a year ago. This weaker development was primarily due to foreign policy developments and the high level of economic uncertainty that accompanied them.

As in 2018, the year 2019 was marked above all by the trade war between the USA and China. In the course of 2019, the trade conflict escalated further: by September 2019, the additional US punitive tariffs on Chinese goods totalled USD 250 billion. The other side paid additional customs duties on goods worth around USD 113 billion. It was not until December 2019 that the spiral was halted for the time being. With the partial agreement in the trade dispute, a further extension of the punitive tariffs on both sides could be avoided. The trade dispute between the US and the EU also continued to smoulder in 2019. The "meat deal" of July 2019 – in which the EU agreed to a purchase guarantee for American beef - did not solve the fundamental problem. Although punitive tariffs on EU cars have still not been imposed, punitive tariffs against France are being considered in response to the digital tax there. The US is also considering imposing punitive tariffs on Airbus in the conflict over aviation subsidies. The chaos surrounding the UK's withdrawal from the EU was also not conducive to economic growth in 2019. It was not until the parliamentary elections on 12th December that the UK's intentions to leave the EU became clear. However, it remains unclear how the economic relations between the EU and the UK will be regulated in detail.

The global uncertainties delayed investments and significantly decelerated the dynamics of incoming orders. The manufacturing sector in particular suffered from the global weakness in demand. Orders collapsed in many industrial sectors. The automotive industry has admittedly got a grip on the problems with the WLTP approval process again. Domestic registration figures were also good. However, the industry is under strong pressure to adapt.

Despite the developments outlined above, Germany was able to hold its own in 2018 in the turbulent times. A recession – two quarters of shrinking gross domestic product – was narrowly avoided. Domestic demand remained strong in the face of high wage increases and very low unemployment figures. Growth is also being supported by the continuing strength of the construction sector.

The trade policy challenges of 2019 will continue to shape 2020. However, there are signs of developments that point to a stabilisation of the situation. The UK's exit is certain. This uncertainty now disappears. There also appears to be agreement on a free trade area between the EU and the UK - but the exact form it will take is still open and fears remain. Although the partial agreement between the US and China only prevents a further escalation of trade disputes for the time being, it does raise hopes – albeit with a high degree of uncertainty - for a pacification of the conflict.

Despite the external uncertainties, domestic developments remain robust. Private demand will increase somewhat less strongly. However, there is still scope for investment and consumption on the part of the government due to the good budget situation. The discussion about the "black zero" is being intensively pursued by trade unions and associations as well as by politicians. Possible leeway is emerging here.

Private financing conditions remain favourable. Some sectors, such as the automotive industry, are investing heavily in order to meet the structural change towards new drive technology, also in view of the CO2 targets set by the EU. New production platforms and battery cell factories are being built. "Digital" investments will increase. Not least because production limits are increasingly being reached in some sectors due to a lack of skilled workers.

Germany is increasingly affected by the shortage of skilled workers. In some regions full employment has been reached, apprenticeships and other vacancies remain unfilled, the unemployment and jobless rate is at a historically low level and the number of Hartz IV households has fallen below three million for the first time in 2019. In March 2020, the Skilled Worker Immigration Act will come into force. This will remove the previous limitation to bottleneck occupations and priority checks for immigrants from non-EU countries. In the medium term, this offers the opportunity to counteract the shortage on the labour market.

2020 will therefore be another exciting year in many respects. In view of recent foreign policy developments, the range of GDP growth will be revised slightly upwards compared with 2019 and will be between 0.75% and 1.00%. The main reasons for this slightly better assessment are the continued robust domestic demand and the fact that the external environment is no longer deteriorating.

The year 2020 will be marked by the topics of trade policy, shortage of skilled workers, automotive structural change and digitization in various forms. These are topics on which GWS will again be commenting this year in various projects, publications and at various conferences.

Other figures can be found here.

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