Most of the global community’s attention is focused on impressive economic strength across much of Asia and, to a lesser extent, the modest economic revival in the U.S. In addition, the recent strong performance of the German economy is noteworthy.
The German economy represents roughly one-fourth of the euro zone economy. However,
Germany accounted for nearly two-thirds of the bloc’s second quarter economic expansion (Bloomberg.com).
During 2010’s second quarter, the euro region economy grew 1.0% from the first quarter (real or after inflation), with growth up 1.7% from 2009’s second quarter. The 1.0% quarterly growth pace was the strongest in more than three years.
Best in 20 Years
By comparison, the German economy grew 2.2% from the first quarter. When measured in the same manner as in the U.S. (comparing apples with apples), the German economy grew at nearly a 9.0% real annual rate during the second quarter, the strongest quarterly growth pace since German reunification 20 years ago.
Such solid growth compares to a 2.4% real annual growth pace in the U.S. during 2010’s second quarter. Even worse, new U.S. trade data suggests the already meager 2.4% second quarter U.S. growth pace could be revised sharply lower to something near a lackluster 1.0% to 1.5% annual pace.
Solid German performance is not indicative of solid performance across Europe. While the French economy grew a reasonable 0.6% from the prior quarter, the Spanish economy struggled to a 0.2% growth rate. The Greek economy declined 1.5% from the prior quarter. Northern Europe increasingly represents the economic
“haves,” while austerity-impacted Southern Europe represents the “have nots.”
Germany, the world’s fourth largest economy, saw exports lead the way, while employment surged. The German unemployment rate has declined for 13 consecutive months, with the latest rate at 7.6%. Germany has regained all of the jobs lost during the financial meltdown. In contrast, euro zone unemployment is at 10.0%…a 12-year high…as fiscal austerity to reduce unsustainable budget deficits and enormous national (sovereign) debt levels is now “required” across Southern Europe in order to sustain investor interest.
Tension Times Three
Even as German economic performance has rebounded, tensions run high. Various euro zone governments see aggressive German exports as taking business from other euro nations. In addition, the German government has opted to go its own way in regard to limiting stimulus programs.
Stronger German performance stands in sharp contrast to five years ago. Unemployment was above 13 percent, more than five million people were jobless, and the nation was a symbol of labor market inflexibility (The New York Times).
In addition, tensions run high with powerful German unions, who agreed in recent years to wage concessions and fewer hours worked in order to largely maintain employment levels. Aggressive unions will demand their financial share of recent successes sooner rather than later.
Political tensions also run high as German voters were sharply critical of the Angela Merkel-led government’s financial support of Greece and other euro nations to survive (so far) the Continent’s sovereign debt crisis. In reality, government support was as much to save German banks (huge investors in Greek, Spanish, and Portuguese bonds) as any interest in helping its Southern neighbors.
Jeff Thredgold is an economic consultant to Zions Bank
Featured in the 10 August 2010 issue of Jeff Thredgold’s Tea Leaf newsletter.
