Wednesday, August 17, 2011

Collapse in German growth will add to euro rebellion

News that Germany recorded only marginal, 0.1pc, GDP growth in the second quarter is not just an economic event; it is a political one too, for the German economic “miracle”, with output rebounding from its post Lehman low far more rapidly than any other advanced economy, has been about the only thing that has kept Germans onside on measures to support the euro during the last year and a half of turbulence.

Indeed, in some respects, the crisis has seemed a positive boon for German industry, for it has meant that its exports have enjoyed a far more competitive exchange rate than would have been the case had Germany still had the Deutsche Mark. Trade has boomed accordingly.

But as the world economy slows, even that advantage is beginning to fade. Now of course there are lots of anomolous reasons why the German economy would have slowed in the second quarter, not least the after effects of the Great East Japan Earthquake, which because of the disruptions it caused in the global supply chain would have hurt the German economy, with its high dependence on manufacturing industry, particularly badly.

Even so, there’s much to worry about. Consumption and investment in construction are slowing fast, and most of the forward looking indicators are turning down. If Germany isn’t even deriving a trade benefit from membership of the euro, then its support for further bailouts will begin to look more questionable still. (more)