German economy lurches back to life taking euro zone with it

Sat, Aug 14, 2010, 01:00

GLOBAL ECONOMIC TRENDS:AFTER STUTTERING dangerously last year, the German economic locomotive has lurched back to life with record growth and is pulling the rest of the euro zone with it.

The 2.2 per cent expansion posted for the second three months of the year is the highest quarter-on-quarter growth since West German figures from 1987 and the strongest growth since records began for unified Germany in 1991.

Within hours Germany’s sober politicians and economists were locked in a war of superlatives: “miracle”, “XL boom” and even “Superman”.

“It was the export-oriented industries that experienced the worst collapse during the crisis,” said Dr Michael Bräuniger of the World Economic Institute (HWWI) in Hamburg on German television. “Now these industries – in particular machine-building, chemicals and auto makers – are growing the strongest.”

Figures released by the Eurostat federal statistics agency showed just how Germany was powering ahead of the rest of Europe, with a trade surplus from January to May of € 60.2 billion. In the same period, France and Britain have run up trade deficits of more than €20 billion and €40 billion respectively. Concerns at that divergence in other European capitals could spark another round in the EU debate from earlier this year, that strong Germans exports come at a high cost to its euro zone neighbours.

But those concerns are likely to be tempered somewhat by data that showed Germany’s notoriously cautious consumers have begun to spend again. Germany’s bounce back to health took economists polled by Reuters by surprise. They had predicted an average 1.3 per cent growth but made up for that with almost unbridled enthusiasm yesterday.

“Superman is wearing black, red and gold this year, Germany’s national colours,” said Carsten Brzeski, an economist at ING in Brussels to Bloomberg. “But at some stage he’ll become Clark Kent again. The economy can’t keep growing at this rate.”

The figures, which highlight the underlying strength of Germany’s economy, add still further to the country’s fiscal credibility. As the ultimate backstop for the entire euro area since Greece was bailed out earlier in the year, Germany’s performance should, in theory, help allay concerns about the future of the single currency.

Practice did not bear this out yesterday, however, with the euro losing ground against the dollar over the course of the day, hitting a three-week low. The single currency bottomed out at $1.2753 before clawing its way back to $1.2770, down 0.4 per cent. Against sterling, the euro weakened by 0.3 per cent, settling at 82.1p.