Germany’s run of poor economic figures appears to show Europe’s most powerful economy is hurtling into a vortex of falling industrial production, tumbling exports and declining GDP.
According to Berlin’s sternest critics, without a radical rethink, falling consumer and business confidence will send prices, which have already stagnated, into reverse. Deflation will rule. Predictions of 1% to 1.5% growth next year will prove to be optimistic and with Germany on its knees, the rest of the eurozone will enter a permanent depression.
When official figures show German exports slumped by 5.8% in August, their biggest fall since the height of the global financial crisis in January 2009, this conclusion is an easy one to draw.
It follows a sizeable decline in manufacturing and business confidence through the summer months.
These are not just straws in the wind, but the very real response to weakening global demand.
But there is another way of looking at the figures coming out of Berlin. It’s an optimistic note struck by finance industry executives that German finance minister Wolfgang Schäuble would no doubt endorse. This counter argument looks at a broader mix of signals over a slightly longer timescale where the trend for private consumption and exports to make up an increasing proportion of GDP registers as a healthy sign.
And there is more. As Paras Anand, head of European equities at fund manager Fidelity, points out, retail sales and consumption continued to grow over the summer and all components for disposable income, such as real wage growth and employment forecasts, are pointing in the right direction.
“In contrast to market sentiment, the German consumer has been the key driver for the economy and is expected to remain the focal pillar of strength,” he said.
This argument posits that the Ukraine boycotts have created only short term nervousness in the export market.
“This should not mask the potential of German companies and their much larger export diversification into the structurally growing parts of the world,” said Anand.
Obviously Anand wants to sell shares and he is predisposed to be optimistic for this reason, but its is still a valid point. The August fall in exports, while substantial, came after a stonking rise in the previous month. The trend for exports on a three-month by three-month measure remains upwards.
Distortions also exaggerate the manufacturing figures after a late-falling summer holidays in some German states kept factories shut for longer.
Still, criticism of Berlin’s economic policy is going to intensify. As Nobel prize-winning economist Joseph Stiglitz wrote last month, Berlin is wrecking its own economy and the rest of eurozone’s with an austerity project that is divisive and creates widespread poverty. He said: “Germany is forcing other countries to follow policies that are weakening their economies – and their democracies.
Even business leaders are becoming restless. “We are no longer growing,” said Volker Treier, chief economist at the German Chambers of Commerce and Industry. “We have had too little investment in Germany for years now.”
Carsten Brzeski, an economist at ING, put the problem succinctly. He said: “No more Sommermärchen (summer fairy tale) but rather a German summer horror story.”
Will Schäuble reverse years of austerity and start to spend some of Germany’s export earnings? Will he support increased spending on the country’s decaying infrastructure and support job-creation for a growing underclass? It doesn’t seem likely given his consistently hardline comments. Only the German parliament can save the day.
