German growth engine sputters
Jan 17, 2013
Germany’s economy is slowing fast. Worth 28% of eurozone GDP, it grew by 0.7% in 2012 – down from 3% the previous year. As usual, exports were the key growth driver, expanding by 4.1%. Consumption growth declined, but the main problem was investment.
Company investment in plant and machinery fell by 4.1% over the course of the year as firms rattled by the eurozone crisis were deterred from spending. In the last quarter of 2012, the economy shrank by 0.5%.
What the commentators said
Given Germany’s main export market is the rest of the eurozone, said Ian King in The Times, this is a “stellar performance”. The buoyant labour market has also ensured solid consumption by citizens widely “characterised as aggressive savers”. Soaring exports to emerging markets have tempered the impact of the eurozone crisis, said Ian Campbell on Breakingviews.
Germany’s export performance depends far more on the Brics (Brazil, Russia, India, China) than on the US: in just 11 years, its exports to the Brics have risen fivefold, compared to an increase of just 19% in exports to America. Overall, exports have doubled since 1999.
The government has now halved its 2013 growth estimate to around 0.5%. That’s not surprising in view of the recession elsewhere in Europe, while the slowdown appears to have undermined consumer sentiment, said Reuters.com. It is at a one-year low. For now, however, a recession – a second successive negative quarter – should be avoided. Business sentiment has climbed to a five-month high and a recent survey suggested that the private sector is expanding again.
The key point, said Olaf Storbeck on Breakingviews, is that “an uncontrolled euro break-up” is off the table now that the European Central Bank will act as a backstop for peripheral debt. So uncertainty about the future of the eurozone shouldn’t flare up and hamper corporate investment this year. “There is no need to lose faith in Europe’s sole engine of growth.”
However, while the odds of a chaotic break-up have diminished, they haven’t fallen to zero. There still seems ample scope for the sort of turbulence that could rattle corporate and consumer confidence – starting with Italy’s elections next month. The euro crisis is “far from over”, warned Clemens Fuest of the ZEW Research Institute. "It’s wishful thinking to expect otherwise."
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.