The World from Berlin 'The Success of Germany's Economy Cannot Be Belittled'

A report issued on Thursday by leading economic institutes indicates that Germany's economy will grow by 3.5 percent this year and that it is being fuelled by domestic demand in addition to exports. Still, German commentators warn, there are challenges waiting right around the corner.
German exports continue to do well -- here, the port in Bremerhaven -- but domestic demand is growing as well.

German exports continue to do well -- here, the port in Bremerhaven -- but domestic demand is growing as well.

Foto: dapd

Everyone, it seemed, had something to say about German economic policy earlier this year. It is too focused on exports, said some. There is not enough domestic consumption, echoed others. A lack of economic stimulus was making things even worse, said analysts from across the Atlantic.

A new economic report, put together by a group of leading economic research institutes in Germany, Switzerland and Austria, claims that, not only is the German economy growing quickly, but domestic consumption is on the rise as well. The boom, in short, might be much more stable than many first thought.

The numbers, certainly, are rosy. The report, which is issued twice a year, once in the spring and again in the autumn, predicts that the German economy will grow by 3.5 percent in 2010 and a further 2.0 percent next year. Furthermore, unemployment is expected to drop below 3 million next year for the first time since reunification two decades ago. And to top off the slew of positive numbers, the DAX, Germany's stock exchange index, topped 6,400 on Wednesday, reaching a level not seen since just days before the collapse of the US investment bank Lehman Brothers.

According to the report, domestic demand has begun to pick up and, even as export growth is expected to slow due to a sluggish global economy, German wages are forecast to rise by up to 2.8 percent in 2011. The economic experts who authored the report anticipate that domestic consumption will continue to be strong next year as a result. The report also indicated that climbing tax revenues will result in a 2011 budget deficit of just 2.7 percent, below the 3.0 percent maximum allowed by European Union rules.

The report, which is used by the German government to develop its own economic forecasts, was not without warnings. A renewed recession in the US remains possible, the report warns, as does a massive correction in the overheated Chinese real estate market.

Still, German commentators on Thursday were, for the most part, patting the country on the back.

Business daily Handelsblatt writes:

"This success cannot be belittled. Germany has every reason to be pleased with this unexpected, strong development in the national economy. But the figure 3.5 percent is not one we should get used to."

"It is appropriate that employers, employees and politicians should celebrate what is happening here and now. But they should also be aware that a period of normalization now stands before us. Not only are stimulus programs around the world coming to an end. But a whole list of countries must still deal with the consequences of excess in their real estate markets, they have to re-establish their economic competitiveness and they must consolidate national budgets. At the moment it is hard to say how drastically all that will affect the world economy and global growth rates in the long term."

"When Economics Minister Rainer Brüderle is handed the favorable prognosis on Thursday, he should be aware of one thing: This boom of 2010 has only provided the German economy a momentary pause for breath. To remain successful in a world economy in which competition is increasingly intense, politicians, businesses and unions must utilize this pause responsibly and creatively. Because the economic success of 2010 will not happen again by itself."

The center-right daily Frankfurter Allgemeine Zeitung writes:

"The German economic revival is not one-dimensional -- that is the good news this autumn from Germany's leading economic research institutes. The first step out of the crisis came thanks to strong increases in exports. The second was due to stronger domestic demand: Germans have been consuming more since summer. When exports no longer grow at such a rapid rate next year, then private consumption will strengthen the economic recovery.... Stronger domestic demand in Germany means the country will contribute to smoothing out macro-economic inequalities."

"The criticism leveled by the economic institutes at the centralized control exercised by European Union agencies hits the bull's eye too. Economic imbalances will be resolved through price and wage flexibility, not by political decree."

The center-left Süddeutsche Zeitung writes:

"The leading economic researchers have listed a number of good reasons to look to the future with optimism. One of those is that employees can be confident in demanding raises during approaching labor negotiations. And they should -- the boom is fueled by their labor as well. German workers have for years been modest with their wage demands out of consideration for Germany's competitiveness. Now, there is no longer any reason for modesty. On the contrary, their participation in the success of their companies is an important prerequisite for the extension of the boom -- particularly given that economic indicators among Germany's most important trading partners are not nearly as rosy -- meaning that the importance of German exports to the country's economy is likely to sink."

"Of course the research institutes have watered down the wine, with reason. The high sovereign debt has not yet been sufficiently addressed, for example.... Furthermore, Germany is not yet prepared for the demographic changes (that await the country). In order to address these problems, the country needs momentum -- and it can gain that momentum from the current boom."

-- Charles Hawley
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