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Forecasts for employment growth and price pressures in Germany at record levels

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Staff Writer | March 14, 2018
Private sector businesses in Germany are forecasting steep rises in both output and employment over the next 12 months, with the level of confidence shown towards future job creation at a post-global financial crisis high, according to the latest IHS Markit Business Outlook survey.
Germany employment
Germany   IHS Markit Germany Business Outlook
Forecasts for inflation have also been revised up, with a record number of firms planning to raise selling prices in the year ahead.

The net balance of German businesses expecting growth in output in the year ahead is at its highest since February 2017.

Stronger sentiment in the service sector is behind the improvement in output sentiment, with the level of confidence among manufacturers unchanged from that seen at the time of the previous survey last October.

The brighter outlook in Germany is broadly in line with the trend across the euro area as a whole, which has seen business confidence perk up to its joint-highest for seven years.

German businesses foresee exports being a key driver of growth over the coming year, with manufacturers citing the Chinese market as a key area for expansion.

Accordingly, some of the principal concerns raised by firms are the threat of increased protectionism and barriers to trade.

New innovative processes and products, and a trend towards digitalisation are also cited as some of the main growth opportunities.

Other main risks according to businesses include: a potential overheating of the economy, resulting in capacity bottlenecks and upward pressure on staff cost; higher interest rates; currency fluctuations and instability in financial markets.

Employment & Investment Plans Employment in Germany is set to rise steeply in the coming year, with firms at their most optimistic about future job creation since comparable data first became available in late-2009.

Companies in the both the manufacturing and service sectors are now more optimistic in regard to their plans for hiring than last October.

As well as boosting staffing capacity, businesses also intend to pump more into capital expenditure over the next 12 months.

The net balance of firms expecting to increase capex is likewise at a record high, jumping noticeably from the previous survey.

The latest data point to a strong likelihood of price pressures picking up in the year ahead.

The forecasted rate of output price inflation has been revised up to a new record high, reflecting increased numbers of both manufacturers and services firms expecting to raise their output charges.

Businesses anticipate being under pressure to raise charges from growing costs.

The net balance of firms expecting to face higher average input prices has likewise reached an unprecedented level.

The overall positive outlook for the private sector is expected to manifest itself in improved corporate earnings.

However, although higher than last October, the degree of confidence shown towards future profitability remains well below the peak level reached in February 2011.

Profit expectations among services firms have in fact improved little since the previous survey despite the more positive forecasts for business activity, with any predicted gains in revenues expected to be partly offset by higher costs, mainly staff pay.