How to emerge from recession in only six months
World acclaims Germany's Economic Boom
Frankfurt, 16 August 2010 – “Largest growth per quarter since German reunification in 1990”, “Politicians consider 3% economic growth rate realistic” and “A summer’s fairy tale” are the headlines that can be found worldwide these days when talking about the German economy.
Crisis was yesterday, today is upswing. According to the German Federal Bureau of Statistics the German GDP is up 2.2% in Q2 – the largest growth ever since the German reunification 20 years ago.
Compared to the same period last year the German economy even grew 4.1% between April and June.
“Germany’s ‘Superman’-Economy grows at record speed” says international financial news portal Bloomberg quoting ING Group Brusseles’ Carsten Brzeski. “This season Superman wears a black-red-and golden gown – but Superman always turns back into Clark Kent” he continues.
Growth-Locomotive of Europe
But that phase is far from being in view. Now the country has to focus on the economic boom.
The BBC simply calls it “record growth”, the Wall Street Journal says “fastest growth pace in 20 years”. Experts are raving. Jörg Krämer, chief economist of Frankfurt based Commerzbank calls it a “summer’s fairy tale” and asserts: “There is no fall back into recession, especially since the German economy now benefits from the progress it’s been making in competitiveness in recent years – and which it now capitalizes on in Asia already.
Germany once again is the Growth-Locomotive of Europe.
The first quarter of 2010 went well, too. The growth rate was 0.5% compared to the same period in 2009, 0.3% more than initially anticipated by the German Federal Bureau of Statistics. Compared to Q1, 2009, the German economy grew 2.1% (and not just 1.7% as initially expected).
German Federal Minister of Economy Rainer Brüderle now considers an overall economic growth of more than 2% as realistic. The strongest quarterly increase since reunification sets the foundation of a sustainable economic upswing, he says. Other members of the coalition government even find a 3% growth reasonable.
In 2009, in the peak of the financial crisis Germany sled into recession. The economy shrank 4.7% - the Federal Bureau of Statistic now even corrected the minus to 4.9%.
But for a couple of reasons it managed the turn-around:
The Export
German companies currently benefit from increased overseas demand, says Kai Carstensen (Ifo Institute for Economic Research, Munich): “Fortunately for us the Asian emerging markets weren’t hit by the global recession. China keeps growing dynamically but even in the US German car makers have been able to sell more in recent months. That all adds to the recovery and advancement of our key industry branches.”
No Consumer Crisis
Carstensen continues: „We didn’t have a real estate bubble. Unlike in the US or Spain people did not invest in increasing real estate prices and did not lose most or even all of their money.” German consumers have always been risk-averse and preferred more conservative forms of investment. That’s been holding the domestic demand at stable levels.
Companies downsized to healthy levels
The cost cutting programs started years ago are paying off now. Many German companies have been using the stronger years in the middle of the decade to readjust their financials and increase their competitiveness.
Wise economic politics
The right economic politics
Michael Heise, Chief Economist of the Allianz group says: „The measures of the German government were critized heavily but have proven as right in retrospective:
• The car-scrap bonus stabilized the markets in a most critical phase.
• Reduced Working Hours were an important bridging measure to allow companies to keep their employees and especially workers in order to being prepared to boot up production on short notice once it started to make economical sense again.
• Increased government investments through economic stimulus packages did stimulate economic growth.”
Low interest rates
Prime rates of 1 percent in the euro-zone ensured companies access to affordable capital. And this is going to continue. “A “German ECB” would have raised the key interest rates already. But since the European Central Bank has to look at the overall economic situation in the entire euro-zone we can expect the prime rates to stay at low levels for the upcoming months” adds Mr. Carstensen.
Everybody stuck together
Jobholders accepted cuts. Employers refused mass layoffs in their initial moments of panic. Unions acted circumspectly and there was a fruitful cooperation between workers councils and senior management to keep the jobs, adds Mr. Heise, Allianz’s Chief Economist.
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