Is The German Economic Recovery Really So Sustainable?

Of course, I could be accused of only latching-on to the data that suits me, and it is true that there has been some reasonably optimistic reporting about the German economy of late: we had the German IFO index, and there was the apparently world cup driven consumer confidence index rise. So todays news that retaill sales fell by 1.4 % in December as compared with November while German unemployment rose in January for the first time in four months must have come as a bucket of cold water for some. Not here at Afoe though, since at least one of us has been stubbornly maintaining (and here) that a sustained internal consumption driven recovery was one thing which was definitely *off the cards*.

Unexpectedly weak German retail sales figures for December have setback hopes that Europe’s largest economy is staging a comeback. Retail sales in the Christmas month tumbled by 1.4 per cent compared with November, according to the federal statistics office. Economists had expected a rise. The figures will heighten fears that overall German growth weakened at the end of last year.

Unemployment in Germany rose in January for the first time in four months, the Federal Labour Office reported today. The seasonally adjusted jobless total increased by 69,000 to 4.699 million from December, pushing the rate to 11.3 from 11.2 percent. In unadjusted terms, the jobless total rose by 408,000 to 5.012 million, taking the rate to 12.1 percent.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

2 thoughts on “Is The German Economic Recovery Really So Sustainable?

  1. “must have come as a bucket of cold water for some.”

    He he … feeling vindicated are we?

    Well, whether expected or unexpected this is not good news. I am in my pessimitic mood today 🙂 (see my latest post at Alpha.Sources) and the fact that the European engine room is still running in first gear is not good.

    The obvious question to ask obviously is why Germany and France are slumbering away and have been so for some time now.

    The fact that we keep hoping for a recovery based on quarterly and monthly indicators just to be let down as the next quarter or month comes by suggests that Germany and France have structural issues. This is hardly a new analysis but I think it is important to stress the long term perspective here.

    I actually have confidence in Merkel’s ability to re-shape the country but the new parliamentary scene in Germany might seriously impede or halt any major reforms.

    So where does it leave Germany? I really do not know but one thing is sure; social market and labour market reforms are the cure!

  2. “He he … feeling vindicated are we?”

    Well I’m certainly not gloating, but I don’t mind being right.

    “So where does it leave Germany? I really do not know but one thing is sure; social market and labour market reforms are the cure!”

    Can I disagree a bit with your wording while agreeing with the sentiment. I’m not sure they are the ‘cure’ since I’m not sure there is a cure as such. Certainly they will help, and doing nothing will only allow things to get worse, but to some extent the Germans are going to have to live with the fact that they aren’t going to be exactly a growth tiger from now on. Living within your means would be a good slogan. I think basically the last big opportunity they had was with the EU expansion and trying to attract a lot of young people from the East (to Germany’s benefit, and at the expense of those Eastern countries). They didn’t want to know however, and now they don’t want to know about encouraging young people to come from Turkey and settle. So I think now we are getting past the point where tinkering with the pyramid is going to work, so we need plan ‘b’, and as you say, “reform, reform, reduce benefits, reform, reduce benefits,reform” will be the watchword.

    Not all the press coverage has been as simplistic as the majority. This one here is an interesting read, as is this.

    There is some discussion about the reliability of the data. There always is. The FT makes this point, which I think is the issue:

    Doubts were raised about the accuracy of Tuesday’s data and retail sales might have rebounded in January as Germans took advantage of special offers. But the figures were consistent with the long running trend whereby robust exports and rising corporate investment have stubbornly refused to translate into jobs and stronger consumer demand.

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