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February 18, 2012

In late 2010 and throughout most of 2011 many economists were left dumbfounded at the German Economy’s ability to provide growth when all those around were falling into recession. Will this so called “stickiness factor” continue to provide growth in 2012?

Yes, if you look at the data supplied by ZEW, the influence economic think tank, whose economic sentiment index grew by 27 points in January 2012. This is the third successive monthly increase in the respected index and the increase was also bigger than expected as analysts were predicting growth of c 10 points. A ZEW representative said “the growth in the index shows that the current lull in Growth in Germany is unlikely to intensify and there is a good chance that the German economy will find itself on an upward trend in the second half of the year”.

This positive outlook is rooted in a backdrop of the official confirmation that in 2011 German exports broke the €1 trillion barrier for the first time ever. Destatis reported that exports totalled €1.06tn up from €951bn in 2010. Germany’s trade surplus rose to a record €158.1bn, 35% higher than China’s €117bn trade surplus.

Most importantly, Exports to its Eurozone partners dropped by 3.3% in 2011 while those to the BRIC Nations increased by 14.7%, so Germany’s competitiveness combined with the strength of the “made in Germany” brand means that the political and financial uncertainty that is effecting her Eurozone neighbours could have a lesser impact on the German Economy than first thought. This is reinforced by the data on industrial orders which grew by 1.7% in December 2011 despite those from the Eurozone falling by 6.8%.

These solid financial results are having a real and positive effect on the German people. For instance, Daimler Benz, owner of the luxury car manufacturer Mercedes Benz, reported it’s largest ever profits in 2011. Profits grew by 29% to €6bn and each employee shared in the results by getting a €4,100 bonus. Daimler expects unit sales to grow in 2012 “driven primarily by emerging markets and Asia”.

Furthermore a German Federal Employment Agency (IAB) report released in January 2012 estimated that there were c 1.13m vacant positions in the employment market. With 41.6m people in employment and unemployment at a record low one challenge is finding employees for these positions, “fears over the future economic trends do not seem to be realised on the labour market” commented IAB researcher Alexander Kubis.

Positive early indicators from the US and the weakness of the Euro against the Dollar, a positive consequence of the continued Eurozone crisis, will also help German exporters to remain competitive in the valuable US market.

The OECD predict that German economic growth will slow to just 0.4% this year, while the government is pencilling in growth of 0.6%. The economic minister “Philip Rösler was recently quoted as saying “while the economic situation looks more difficult, German remains highly competitive and will be well positioned to use the growth opportunities provided when the global economy recovers to grow at a faster rate”. On balance then while her neighbours are slowly slipping into the pit of debt and recession Germany’s limpet like “sticky” economy should continue to show growth in 2012.