Wednesday, May 23, 2012

German growth comeback confirmed

While the Eurozone is still searching for growth, Germany has it. Today’s second estimate of German 1Q GDP growth confirmed an excellent growth performance. The German economy grew by 0.5% QoQ, from -0.2% QoQ in 4Q 2011. Compared with 1Q 2011, the economy grew by 1.2% (seasonally and working-day adjusted).

Today’s release also presented the growth decomposition, showing that the growth comeback was mainly driven by private consumption(+0.4% QoQ) and exports (+1.7% QoQ). The drop in inventories, however, was a clear warning signal for the growth in the coming quarters, reflecting weakening new orders.

Growth in the Eurozone's biggest economy, especially when it is domestically-driven, should be beneficial to the rest of the Eurozone. This is at least a common economic wisdom and often presented as a basic principle for a rebalancing of the Eurozone economy. However, the reality looks less encouraging. German trade data of 2011 show that hardly any Eurozone peripheral country has benefitted from the German growth miracle. While total German imports increased by around 13% YoY in 2011, imports from Greece and Spain were only up by roughly 2% and imports from Ireland were even down by roughly 7%. Only Portuguese exporters seem to have benefitted from the German recovery.

The German economy has avoided a recession and staged an impressive growth comeback. The rest of the Eurozone, however, will have to continue its quest for growth.

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