Germany's New Wirtschaftswunder Does Euro Crisis Threaten Berlin's Economic Miracle?
There seems to be a lot of unanimity in Germany about the country's economic prospects for 2011. But while a chorus of optimists in business and government circles make rosy predictions of continued growth, some worry that the euro crisis could put an end to Germany's post-crisis euphoria.
German President Christian Wulff and his wife Bettina recently threw a minor wrench into his country's economic upswing.
It was mid-December, and the presidential couple was touring the manufacturing facilities of Sick, a sensor producer in the small southwestern German city of Waldkirch. The honored guests had a hard time making their way past the assembly tables and conveyor belts and an even harder time holding a conversation with any of the workers. In this instance, the production halls loudspeakers were not to blame. Instead, the engineers and technicians simply had no time to chat. They were under a lot of pressure; they had orders to fill.
"Given the state of our order books, we simply can't stop the machinery," says company head Robert Bauer, adding that Wulff got a taste of "the actual situation on the ground." Indeed, Wulff may be president, but the customer is still king.
For Sick, the reality of the economic boom has been a 25 percent year-on-year increase in orders in 2010 as well as 200 new employees in its German plant. Indeed, in recent months, the demand for light barriers and sensor technology has risen so rapidly that there are now shortages in materials. "We're working at full capacity," Bauer says.
Not Just about Exports
Things aren't just buzzing in Waldkirch. Indeed, the economy is gaining steam all over Germany. The automotive industry has added additional, special shifts. The machine-building industry has made up for any drops in production resulting from the crisis. Even the trade and service sectors are hiring. There's no denying it: Germany has overcome the worst postwar recession in record time.
In 2010, Germany's economy grew by almost 4 percent, or faster than it had at any time in the last 20 years. Over 40 million Germans are currently working, more than ever before. There has also been a corresponding drop in unemployment, with the figure even dipping below the much-touted 3 million target a few months back. The success has even led some politicians to become somewhat overconfident. For example, Economics Minister Rainer Brüderle has proclaimed that: "We are on the expressway to full employment."
Whatever the case may be, the government, employers and labor unions are all certain about one thing: Unlike the booms in recent years, this one isn't solely based on exports. Indeed, even private consumption has noticeably picked up, and companies are increasing their investments.
Taken together, these last two factors basically determine domestic demand, which has shown clear signs of weakness in Germany for years. But those days appear to be over. A recent report on the economy from Germany's Federal Ministry of Economics and Technology states that, "The upswing has solidified and broadened."
Let the Good Times Roll
To get a view of just how unscathed German industry has emerged from the crisis, it's enough to take a look at the work floor of a factory in eastern Munich. Here, HAWE Hydraulik manufactures valves and pumps for tunnel-drilling machines and wind turbines. After orders nosedived two years ago, demand first picked up in Asia, before spreading all the way back to clients in Germany. "We are very happy with the growth we are seeing here, too," says Karl Haeusgen, the company's owner and CEO. "It's hard to believe, but the order level is already even higher than it was in our record year of 2008."
The company ended its short-time work program -- a special scheme in Germany that saw the federal government partially subsidizing wages and benefits in order to prevent mass layoffs during the crisis -- in March and is now even planning to start adding to its almost 1,800-strong workforce. In 2010, Haeusgen had 70 percent more orders on his books than he did the previous year. "That is massive," he says.
The revival hasn't been limited to increased demand for capital goods, either. Germans have also rediscovered the joy of consumption. Take, for example, the scene in the runup to Christmas in Dussmann, a massive book, music and video retailer that bills itself as the "cultural department store" just a block from Berlin's main downtown intersection. The place was at overcapacity, and the check-out lines stretched all the way to the front door. "Christmas sales were super," says Julia Claren, Dussman's business manager. Her euphoric mood was also shared by Stefan Genth, the head of the German Retail Federation (HDE). "The mood among retailers is better than it's been in a decade," Genth says. And even Karstadt, the massive department store chain, has emerged from hard times with newfound confidence. "We can tell very clearly that there has been a pickup in consumption," one Karstadt spokesman says.
And, if the predictions are correct, things will stay this way for a while. Economic experts predict that domestic demand will prop up the boom. In 2011, they add, consumption and investments will account for the largest share of growth, which will remain strong by German standards. The most recent predictions from Germany's economic-research institutes put the figure somewhere between 2.3 percent and 3.2 percent.
Even Germany's federal government can't avoid having to amend its cautious forecast of 1.8 percent growth for the coming year. The government's annual economic report, which is currently being prepared under the auspices of the Economics Ministry for publication in late January, includes a still-undetermined prediction of over 2.3 percent or 2.4 percent.
The Reasons Behind the Boom
These remarkable growth rates are proof of how Germany has overcome the crisis better than any other developed country. Indeed, while the United States, France and Great Britain continue to suffer from the aftereffects of the deep recession, it seems like nothing can slow down the German economy. For a long time now, Germany has been the engine of growth in the euro zone, and even the current turbulence surrounding the common currency has yet to have any really noticeable effect. What's more, several indicators of business sentiment -- ranging from the business climate index of the Munich-base Ifo Economic Research Institute to the barometer of sentiment in small and medium-sized German companies compiled by the KfW state development bank -- presage a continuation of the upswing and reflect expectations of rising incomes, profits, capacity utilization and consumption.
- Part 1: Does Euro Crisis Threaten Berlin's Economic Miracle?
- Part 2: 'Radiant Prospects'