Germany approaches national elections next month having suffered its worst recession since the second world war. Until recently, the scale of its
economic contraction – almost 4 per cent in the first three months of this year – would have been inconceivable for such an advanced, politically stable industrial nation.
Yet it has been hard to sense an acute crisis. Living in Germany in the late 1990s, when the country was suffering its post-unification hangover, there was more self-reproach and debate about its economic model. The lesson of the current crisis is that however much the world’s economies have converged, Germany ticks differently.
Here are 10 surprising aspects of the German economy and economic thought that together could explain why the Teutons are toughing it out.
First, Germany might beat the UK and US in escaping from recession. As global prospects brighten, its export-led economy is firing up.
Industrial orders – which lie close to the German soul – are up 13 per cent since February. June export and industrial production data on Friday even left open a possibility that second-quarter growth figures this week could be positive.
Jörg Krämer, chief economist at Commerzbank and previously one of the great German gloomsters, reckons gross domestic product could grow by as much as 1 per cent in the current quarter. If you are American, and prefer bigger-looking annualised numbers, that would be a 4 per cent rise. True, Germany’s fortunes hang on the world outlook; Mr Krämer expects only a “mini-V” shaped recovery, with growth remaining “anaemic” longer term. But anything other than weakly positive growth would diverge from the trend over the past decade.
Second, consumers have been unfairly maligned. Germany has long consumed too little, while investing heavily and running large trade surpluses, thus contributing to global economic imbalances. So since the start of the crisis, Berlin has been berated internationally for not doing enough to boost domestic demand. In fact,
consumer spending rose by 0.5 per cent in the first quarter – the most since mid-2007 – thanks largely to government incentives for new car sales, and stable employment. Goldman Sachs reckons consumer spending rose 0.2 per cent in the second quarter, while the US had a 0.3 per cent fall.
Third, Berlin still doesn’t get it. Economists rubbed their eyes in disbelief at the May interview in Die Zeit with Peer Steinbrück, finance minister, in which he apparently forgot about the notoriously conservative shopping habits of his compatriots, to complain that “as a society we have, compared to what we have produced, consumed too much and invested too little”.
Fourth,
unemployment has actually fallen since April in eastern Germany, which is less export-dependent than the country overall. Joblessness there is still unforgivably high, and nobody expects the downward trend to last. But the fall shows jobs are not being shed as rapidly as in previous recessions, thanks largely to government-funded short-time working schemes.
Five, politicians still think they can create jobs just by announcing targets.
Frank-Walter Steinmeier, the Social Democratic challenger in September’s elections, pledged last week to create 4m jobs by 2020. Perhaps he had forgotten how worthless similar pledges by former chancellors Helmut Kohl and Gerhard Schröder eventually proved.
Six, the housing market, which has been flat for a decade, is stirring. The latest Bundesbank bank lending survey showed demand for home loans recovering much faster than in the eurozone as a whole. Young Germans see this is a good time to lock in at low interest rates. Or maybe, disheartened by financial assets, they are turning to bricks and mortar to save for their old age.
Seven, in spite of everything, relying on exports and trade surpluses is still widely seen as the only option for a rapidly ageing society. Germany’s birth rate fell to just 8.2 per 1,000 population last year, the lowest in the European Union. Politicians fret about a rising phobia towards children, as shown in complaints about noisy kindergartens in residential areas. “Society has to an extent fallen out of the habit of thinking of the needs of children – because, quite simply, there are not so many of them,” a Social Democrat social policy spokesman told a local newspaper recently.
Eight, Germans might not be as worried about future inflation as popularly supposed. An
FT/Harris poll last month showed that people in the US were more worried that actions by governments and central banks would trigger short-term inflation.
Nine, Germans’ holidays remain inviolable. The same FT poll showed that just 9 per cent would reduce their holiday budget this year.
Ten, German beer sales may be tumbling because of the crisis – sales in the first half of 2009 were the lowest since reunification – but organisers of Munich’s Oktoberfest say hotel bookings are in line with previous years. The beer festival will be in full flow as the country votes on September 27. It takes more than a global crisis to stop Germans putting on traditional dress and dancing on the table.
FT, Augustus 10 2009
