Post by tuftabis on Jul 16, 2010 0:55:55 GMT -7
Germany’s exporting prowess is leaving the rest of the euro area behind.
FOR a moment in the spring, the existence of the euro seemed under threat. Strange, then, that during those weeks of deepening crisis, businesses and consumers exchanged euros for goods and services much as they had done since the currency was introduced. Indeed the euro zone’s economy was quietly expanding. Forecasters reckon that GDP grew at an annualised rate of around 2% in the second quarter, a decent number by European standards.
Fittingly for the country that gave most to bail out the euro zone, Germany did rather better. Its GDP growth rate may have been 4% or more. Business confidence in Germany certainly looks perkier. Orders for factory goods rose by a quarter in the year to May. The surge in new business has been good for jobs. In contrast to the trend in the rest of the euro zone, unemployment in Germany has fallen lower than even before the financial crisis. The job market has been helped by a short-time working scheme and flexible hours (see article). Many of the workers whose hours were cut have been quickly drawn back into full-time work.
Such figures might spur a new, if milder anxiety: that Germany’s economic ties to the euro area are weakening even as its financial ties are tightening. Germany’s revival has been built largely on exports. Having sold as much as they could to rich-world countries, German companies are looking for fresh sources of growth in Asia and Latin America. “German firms have squeezed the euro zone like a lemon and then thrown it away,” says Marco Annunziata, at UniCredit. Germany’s bent for engineering fits with the demands of its newer customers. Industrialising countries, such as China and Brazil, are valued clients of firms that supply power plants and other kit for big infrastructure projects. Smaller producers of capital goods have had a rebound in demand, according to VDMA, an industry group.
Germany’s shift away from European markets started long before recession hit. By 2008 exports of goods to the euro zone accounted for 17% of German GDP, compared with 23% to countries outside it, says Julian Callow at Barclays Capital. Financial tensions within the euro zone may be further strained if Germany’s trade ties with the rest weaken as its economy forges ahead. But the currency itself may help keep the gap in growth rates tolerable. The euro’s fall in recent months is less of a boon to Germany than it is to other countries. A recent study by the European Commission showed that demand for French, Spanish and Italian exports is far more sensitive to changes in prices than demand for the niche capital goods and luxury cars that Germany produces. Italy benefits more than twice as much as Germany from a falling exchange rate.
That may be why countries that bond investors are most wary of have managed to grow at all. Business-confidence indicators from Italy are grounds for cautious optimism. Ireland’s GDP rose by 2.7% in the three months to March, despite a weak domestic economy, thanks to surging exports.
The cry from America is that the euro zone is living off the spending of others and adding little to global demand. The retort from Europe is that its upswings typically begin with exports. Eventually firms feel confident enough to invest and to hire. And when jobs are created, consumers start buying too. But that sequence cannot be relied upon when much of Europe is weighed down by consumer and corporate debt. Only Germany has a real chance of making the transition to more balanced growth.
continuation - www.economist.com/node/16542836
FOR a moment in the spring, the existence of the euro seemed under threat. Strange, then, that during those weeks of deepening crisis, businesses and consumers exchanged euros for goods and services much as they had done since the currency was introduced. Indeed the euro zone’s economy was quietly expanding. Forecasters reckon that GDP grew at an annualised rate of around 2% in the second quarter, a decent number by European standards.
Fittingly for the country that gave most to bail out the euro zone, Germany did rather better. Its GDP growth rate may have been 4% or more. Business confidence in Germany certainly looks perkier. Orders for factory goods rose by a quarter in the year to May. The surge in new business has been good for jobs. In contrast to the trend in the rest of the euro zone, unemployment in Germany has fallen lower than even before the financial crisis. The job market has been helped by a short-time working scheme and flexible hours (see article). Many of the workers whose hours were cut have been quickly drawn back into full-time work.
Such figures might spur a new, if milder anxiety: that Germany’s economic ties to the euro area are weakening even as its financial ties are tightening. Germany’s revival has been built largely on exports. Having sold as much as they could to rich-world countries, German companies are looking for fresh sources of growth in Asia and Latin America. “German firms have squeezed the euro zone like a lemon and then thrown it away,” says Marco Annunziata, at UniCredit. Germany’s bent for engineering fits with the demands of its newer customers. Industrialising countries, such as China and Brazil, are valued clients of firms that supply power plants and other kit for big infrastructure projects. Smaller producers of capital goods have had a rebound in demand, according to VDMA, an industry group.
Germany’s shift away from European markets started long before recession hit. By 2008 exports of goods to the euro zone accounted for 17% of German GDP, compared with 23% to countries outside it, says Julian Callow at Barclays Capital. Financial tensions within the euro zone may be further strained if Germany’s trade ties with the rest weaken as its economy forges ahead. But the currency itself may help keep the gap in growth rates tolerable. The euro’s fall in recent months is less of a boon to Germany than it is to other countries. A recent study by the European Commission showed that demand for French, Spanish and Italian exports is far more sensitive to changes in prices than demand for the niche capital goods and luxury cars that Germany produces. Italy benefits more than twice as much as Germany from a falling exchange rate.
That may be why countries that bond investors are most wary of have managed to grow at all. Business-confidence indicators from Italy are grounds for cautious optimism. Ireland’s GDP rose by 2.7% in the three months to March, despite a weak domestic economy, thanks to surging exports.
The cry from America is that the euro zone is living off the spending of others and adding little to global demand. The retort from Europe is that its upswings typically begin with exports. Eventually firms feel confident enough to invest and to hire. And when jobs are created, consumers start buying too. But that sequence cannot be relied upon when much of Europe is weighed down by consumer and corporate debt. Only Germany has a real chance of making the transition to more balanced growth.
continuation - www.economist.com/node/16542836
}, it is so obvious as to be mystifing..
