Optimism On The German Economy

Both New Economist and MacroBlog seem very upbeat about the prospects for the German economy. Macroblog cites Bloomberg and says “Things are definitely looking up“. New Economist is rather more guarded, pointing to the IMF forecast, and the recent Federal Statistics Office announcement that second quarter growth came in at 0%. But New Economist find faith in an (old) Economist view that things are getting better in Germany’s surprising economy (ask Doug on the main page about the surprising bit 🙂 ). As New Economist says “Of course the Economist can get it wrong, but in thbis case maybe they’re onto something”, while as Edward replies “of course the IMF can get it wrong, but in this case maybe they’re onto something”

The Financial Times definitely comes down on the side of the optimism camp, but in their case with significant prudence:

However, fears Germany?s election system might result in a fractious ?grand coalition? between the CDU and Social Democrats may have damped expectations more recently and economists remain cautious about the strength of any German upswing. Holger Schmieding, economist at Bank of America, warned that expectations were fickle and that ?the economic upswings heralded by major surges in the ZEW in mid-2002 and early 2004 both turned out to be disappointingly shallow and short-lived?.

As for me, well, for my part

I’m definitely in “steady as she goes mode”, and I don’t see any reason to change my fundamental assessment. Business confidence is definitely up, but this does seem to be largely dependent on the export outlook with the global economy withstanding the oil shock reasonably well. Strong growth in the US will certainly be encouraging them. The recent micro level structural changes make German companies reasonably bullish when it comes to head-on-head with their US rivals.

There is of course such a think as a business cycle, so even Germany doesn’t stay at the bottom of the cycle indefinitely. I know you hate these trend/cyclical issues, but the CEP for Germany does *seem* to have dropped significantly in recent years. 1% per annum is now about peak for Germany if you look at recent performance. Also the peaks are lower and the phase shorter I think.

Again, the optimism in Bloomberg doesn’t reach as far as the federal statistics office, as I’ve already mentioned, first quarter, the German economy had zero second quarter growth.

It’s the difference between the US and the German consumer that matters (thank you Stephen Roach) and despite what an analyst like Volker Kleff says or thinks there are strong a-priori reasons to imagine that there won’t be a re-animator syndrome (apologies this time to HP Lovecraft). So as long as the a-posteriori doesn’t start to challenge too strongly the a-priori, I’m staying put.

(Adapted from my comments on Dave Altigs MacroBlog).

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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".

One thought on “Optimism On The German Economy

  1. I guess you have to consider that in most of Germany (in terms of area) the announced tax changes mean that house values will fall

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