The World from Berlin German Economic Success 'On Shaky Ground'

Strong growth was measured for Germany's economy in 2011, but slight contraction in the final quarter of the year has experts warning that recession could lie ahead. Troubled by the ongoing euro crisis, German editorialists on Thursday urge lawmakers to keep a deeper downturn at bay.

Germany's healthy domestic consumption will carry the nation through a downturn, experts predict.

Germany's healthy domestic consumption will carry the nation through a downturn, experts predict.

Though new statistics released on Wednesday showed strong economic growth in Germany for 2011, a slight contraction at the end of the year has prompted fears that Europe's largest economy could experience a recession this year.

Averaged throughout the year, growth of gross domestic product (GDP) was a "very robust" 3 percent. But the Federal Statistical Office's preliminary estimate for the final quarter registered a foreboding 0.25 percent contraction. Economists have warned that the shrinkage was likely to continue into the first quarter of 2012, but many are still optimistic that Germany will recover in the second half of the year.

President of the Federal Statistical Office Roderich Egeler said that much of the growth in 2011 had been driven by domestic investment and private consumption, which rose by 1.5 percent, the highest jump in five years. Indeed, domestic consumption will continue to sustain the German economy for the rest of the year, Kai Carstensen of the Munich-based Ifo Institute told tabloid Bild on Thursday. "It will protect us from bigger problems," he said.

Despite the expected downturn, many experts still forecast positive growth for the coming year. The Cologne Institute for Economic Research (IW) forecast a GDP increase of 0.6 percent, while Allianz predicts it will rise by 1 percent.

The German Economy Ministry was also optimistic, saying on Wednesday that thanks to the thriving domestic economy, a "marked weak phase is currently not likely."

Hard Times Ahead for Europe

Other recent economic indicators suggest that 2012 will be rough for Europe as a whole, which will also prove challenging for Germany. On Thursday the Ifo Institute predicted that a short recession would hit the euro zone. GDP for the 17 member states shrank by an estimated 0.3 percent in the fourth quarter of 2011, and will likely contract again by 0.2 percent in the first quarter of 2012, it said.

The downturn is likely to cause problems for Germany's strong export industry, with some 40 percent of exports going to other EU countries. Simon Junker, an expert with the German Institute for Economic Research (DIW), told news agency AP on Wednesday that thanks to the euro-zone crisis, both imports and exports were likely to slow down.

"Germany's strongly export-driven economy will not be able to elude the slowdown of the global economy," Junker said. "Especially German exports will suffer from the euro-zone crisis." But if Europe's leaders "manage to quickly and credibly contain the crisis," there is no reason not to be optimistic for the future, he added.

On Thursday German commentators seemed to revel in their country's overall economic success for 2011, but some warned that maintaining it would be difficult.

The left-leaning Berliner Zeitung writes:

"In an area where other states fail despite great effort, Germany apparently succeeds with little effort: saving. Euro-zone crisis countries such as Portugal, Ireland, Greece and Spain all likely failed to reach their 2011 budget consolidation goals. By contrast, Germany shines with a budgetary deficit of just 1 percent of gross domestic product, significantly lower than the Maastricht limit of 3 percent of GDP -- a limit still far out of reach for other countries."

"The secret of Germany's saving success is economic growth. The GDP increase of 3 percent last year flushed lots of money into state coffers in the last year. Tax revenues jumped by more than 6 percent -- and that without economy-damaging tax increases."

"But in euro-zone crisis countries the harsh spending cuts and tax increases are creating the expected result: Consumption and investment are down. It follows that the governments' budgetary deficits don't sink, because along with spending the revenues decrease too. … Every European consolidation strategy that focuses on savings at any cost is thus doomed to fail."

Conservative daily Die Welt writes:

"The positive thing that should be taken from the news is not the numbers as much as it is the way they came about. No longer is export strength, criticized so roundly on an international level, the main driver of growth. Instead it was previously weak domestic demand, investment and the construction sector that created the momentum. It shows the German business model works."

"The big danger is that the fantastic growth numbers are hiding some dangers. Stagnation threatens for the coming year. If the debt crisis escalates, it could be even worse. … Despite the overall health of the economy, the growth rests on a shaky ground. Thus it is important that the government does not limit itself to just managing the euro crisis and protecting prosperity. Instead it should use the remaining two years of its term to continue reforming the tax and social systems. Otherwise they risk the hard-won economic strength."

The conservative Frankfurter Allgemeine Zeitung writes:

"Naturally the happiness would be greater if there was certainty that the upswing would continue for a third year in a row. The dent in the fourth quarter dampens expectations already dulled by the miserable debt crisis. Everything depends on the ingenuity of the businesses. They have recently shown it so abundantly that one can keep looking forward with optimism. Still, any new potentially damaging tests of strength should be avoided. That goes for experiments with energy costs and the politicians ogling financial market reforms, as well as for the unions. Low pay rate increases coupled with profit sharing is the recipe for helping the upswing continue."

Mass-circulation daily Bild writes:

"EVERYONE is feeling the effects of the crisis in Europe -- not just the countries that are broke. There is no reason for those of us in Germany to sit back. On the contrary, the growth contraction is an alarming wake-up call for politics and the economy. The government must finally get serious about its planned reforms, and saving, saving, saving. Otherwise its budget will blow up."

-- Kristen Allen, with wires


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