German economy still on an uptrend thanks to consumption

The weakness of emerging markets will increasingly weigh on the German economy in 2016. This is the main reason why the 2016 growth forecast for Germany, at 1.3%, is well below consensus (1.8%). But a predicted growth rate of 1.3% would not represent a bad outcome and would mean that the already-high capacity utilisation rate will rise further. The fact that still expect German growth of 1.3% despite the issues in the emerging markets is primarily due to private consumption: wages are growing at a healthy rate of 3%, inflation is low (1.6%) and consumers are happy to spend their money given low interest rates. This is driving the economy and causing companies to raise recruitment, which is additionally boosting consumption without any indication of higher interest rates which could halt this process. 

Germany is at the beginning of a consumer-driven upswing phase, but an increasing number of blemishes will develop under the shiny surface. The German government is rolling back the labour market reforms of former chancellor Gerhard Schröder's era. Furthermore, German unit labour costs have been rising at a sharper rate than in the rest of the Monetary Union for the last five years. Property prices are climbing at an overly rapid rate on the back of low interest rates; this may lead to bubbles forming at some point and considerable economic harm when they burst.