Everyone knows that without the German export-driven growth dynamo, the European economy would quickly wither and disappear into nothingness. Which is why today’s report that the German economy grew by just 0.4% last year, its worst performance since the global financial crisis in 2009, with strong domestic demand only partially offsetting the continued negative impact of the euro crisis, should be reason for significant concern to all especially since all the artificial, goalseeked GDP readings from the periphery are just that, and are completely meaningless in the grand scheme of things – should Germany’s growth falter, as it clearly has been over the past two years, may as well put the lights out.
For the past three years we have been hearing how Germany is about to turn the corner and its GDP will surge… any minute now. Instead what happened was that growth slowed to 0.7% in 2012 and the economy barely skirted a recession at the start of 2013. Luckily, soon thereafter Europe revised its GDP definition and all was well, if only for the time being. Still, excluding 2009, when the economy shrank by 5.1 percent, its biggest contraction of the post-war era, 2013 proved Germany’s weakest since 2003 when it was dubbed the “Sick Man of Europe”.
Reuters reminds us that the events of 2003 prompted then-chancellor Gerhard Schroeder to unveil far-reaching reforms of the welfare state, which are now being diluted by the new right-left coalition of Angela Merkel’s conservatives and the Social Democrats (SPD). Investments took 0.1 percent off GDP last year as companies held off on investing due to uncertainty over the euro zone crisis. Foreign trade, which had underpinned growth for the previous three years, subtracted 0.3 percent. The fact import growth outpaced that of exports could tame criticism of Germany’s traditional reliance on exports and suggests it is contributing to recovery among its euro zone trading partners by buying up their products.
Prespun excuses aside, when it comes to Germany, it is all about exports. Recall that net trade accounts for nearly 40% of German GDP – the highest of any developed world economy!
And while the Euro means Germany is competitive within the Eurozone (since the dreaded DEM is no longer around), it still has to export outside the monetary union. Which is what seems to not be happening.
Reuters puts this print in the context of analyst expections: “The preliminary gross domestic product (GDP) estimate from the Federal Statistics Office, released on Wednesday, fell just short of the consensus forecast for a 0.5 percent expansion in a Reuters poll of 18 economists.” It adds the following color:
Germany faced international criticism earlier in 2013 for not doing enough to reduce its high trade surpluses. The U.S. administration reprimanded Germany in October in its semi-annual report to Congress for its economic imbalances.
Private and public consumption rose 0.9 and 1.1 percent respectively in 2013, helping domestic demand contribute 0.7 percent to GDP despite the drag from investments.
The private household savings rate dropped to its lowest level since 2001 as low interest rates and a robust labor market encouraged traditionally thrifty Germans to spend.
The public sector budget swung to a slight deficit of 0.1 percent after posting a surplus of 0.1 percent in 2012.
The BGA trade association has said it expects exports, the cornerstone of the Germany economy for decades, to grow by up to 3 percent in 2014.
Good luck: maybe this time will be different and “experts” will finally predict the future. Then again, as we – with the help of the IMF – have been showing, global trade is crashing thanks to global QE where one no longer needs to trade: instead one can simply print whatever “money” one needs…
The happy ending there is absolutely assured.