Tags: Germany | Strong | Growth | Exports | Boom

Germany Sees Strong Growth as Exports Boom

Wednesday, 21 July 2010 03:49 PM EDT

Germany, Europe's economic engine, is back in gear after a painful recession, as foreign customers snap up cars and industrial machinery and the country reaps the benefits of stimulus spending that helped keep the motor running at home during the downturn.

In particular, economists point to government support for keeping workers on the job with shorter hours instead of laying them off — a measure that kept more money in people's pockets and prevented a growth-killing spike in unemployment.

As things pick up, those programs are scaling back, while the government expects to exceed its economic growth estimate.

Meanwhile, carmakers Daimler AG and BMW AG say their prospects have brightened — enough for BMW to pay workers a bonus to thank them for their commitment during the tough times.

Not bad for a country where the economy shrank by a painful 4.9 percent only last year — easily the worst performance since World War II for Europe's largest economy. Germany is now a bright spot in a Europe still shaking off recession and struggling with heavy levels of government debt in some countries.

The economy minister proclaimed in parliament this month that Germany can be proud "that we are the economic locomotive for the whole European Union."

So far, the government is predicting 1.4 percent growth in 2010, but officials say they expect the real figure could be 2 percent.

"We have a situation now in which the economic upswing is really robust," Chancellor Angela Merkel said Wednesday. "Germany proved to be stronger in this crisis than was thought — that, of course, has partly to do with the fact we took the right political measures."

Economists see more sedate growth ahead. But for now, the signs are rosy: Germany's central bank, the Bundesbank, said in its July monthly report that "gross domestic product likely grew extremely strongly in the second quarter."

It gave no figure, but estimates for quarter-on-quarter growth range up to 1.5 percent — a huge increase on the 0.2 percent seen in the previous two quarters. Official figures are due Aug. 13.

The main driving force for Germany, a major exporter, remains the growing world economy, the Bundesbank said. Still, there's general agreement that the way to recovery was paved in part by government spending,

That included two stimulus packages worth some 80 billion euros ($104 billion), featuring infrastructure spending on roads, schools and other projects that is still keeping builders busy and a now-expired car-scrapping bonus.

That fueled sales at home for much of 2009; this year, big increases in demand from export markets such as China and the U.S. have helped Germany's automakers.

Top-end car companies Daimler AG and BMW AG both said last week they were upping their 2010 outlooks; BMW said it would pay German workers a special bonus averaging 1,060 euros ($1,353) each this month to reward their commitment during the economic crisis.

Perhaps the most remarkable aspect of Germany's performance during the crisis was its success in keeping down unemployment, which was tamed by widespread use of a government-backed program allowing companies to put workers on reduced hours in an effort to avoid layoffs.

The number of people involved in the program peaked at 1.5 million in May 2009 but has since shrunk as people return to full-time work. BMW, for example, had up to 24,000 employees on short work at the height of the crisis, but hasn't used it since January.

Germany's jobless rate was 7.5 percent last month, with some 3.15 million people registered unemployed — relatively low by German standards and well below the double-digit figures now seen in other parts of Europe.

In 2009, domestic consumption "to some extent saved Germany from an even bigger crash," said Ulrich Kater, the chief economist at Deka Bank in Frankfurt.

"It was surprisingly stable — that was, of course, due to the short-work solutions," he added, noting that "it would have been significantly worse if people had lost their jobs."

The various government measures are all part of the reason for the upswing, "individual building stones in a gigantic building that worldwide economic policy has built in the past two years," Kater said.

Just as Germany was hit hard and fast by the crisis, its exposure to the world economy — and to the benefits of stimulus programs and low interest rates elsewhere — has helped it to a quick recovery, he argued.

In addition, labor-market and welfare reforms carried out under former Chancellor Gerhard Schroeder before 2005 helped make Germany's economy more stable and enabled it to "better withstand this storm," he said.

Kater said he expects growth of nearly 2.5 percent this year. But he cautioned that the second quarter "was clearly the high point of the recovery."

"This recovery won't break off, but it will become significantly slower," he said, adding that he still expects German production to reach its 2008, pre-crisis level in 2012.

Andreas Rees, an economist at UniCredit in Munich, said current indicators point to "a positive note" in economic data for the next few months but that businesses' and investors' outlooks are now darkening.

"After the harshest recession ever and the surprisingly strong upswing in the last 21 months, there are a lot of question marks and unknown quantities going forward," Rees wrote in a research note.

Among other things, "the fizzling out of the fiscal stimulus packages and the public spending cuts in European countries entail the risk of a stronger-than-expected setback," he said.

Merkel herself said she "wouldn't yet say that (growth) stands on enduringly stable feet — we have to take care that we implement the right policies."

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Germany, Europe's economic engine, is back in gear after a painful recession, as foreign customers snap up cars and industrial machinery and the country reaps the benefits of stimulus spending that helped keep the motor running at home during the downturn. In particular,...
Wednesday, 21 July 2010 03:49 PM
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