It is a strange habit of the German statistical office to release GDP data for the entire past year before actually publishing fourth quarter data. According to the just released numbers, German GDP increased by 0.9% in 2012 (a non-calendar adjusted 0.7%). This outcome suggests that the German economy has entered contractionary territory in the fourth quarter, probably contracting by some 0.3/0.4% QoQ.
The economic recovery, the stable labour market and euro-crisis-driven record low interest rates have led to a further improvement of public finances in Germany. According to the statistical office, the government’s fiscal balance recorded a surplus of 0.1% of GDP, the best fiscal performance since 2007. In cyclically-adjusted terms, the fiscal balance should even be better. As a consequence, Germany has overachieved its own fiscal targets. The government has reached a balanced budget already four years before the official start of the legally-binding debt brake.
If the German economy were text-book example of a closed economy, it would still be an island of happiness. Record high employment, solid consumption, wage increases and a housing boom could have made 2012 another boom year. Unfortunately, the slowdown of exports in the second half of the year and delayed investments (despite record low interest rates) due to uncertainties surrounding the euro crisis weighed on growth.
Looking ahead, she sound economic fundamentals should ensure another solid growth performance in 2013: i) Private consumption should remain stable and could even benefit from further employment growth if the latest immigration trends continue. ii) The German economy should be one of the first beneficiaries of any pick up of the global economy. iii) Domestic investment could become the growth wildcard for in 2013. Financing conditions have never been more accommodative in Germany than at present and in addition many companies have increased their cash positions last year. If uncertainties surrounding the euro crisis and the global economy ebb away further, pent-up investment could become an important growth driver.
The German economy might not be an island of happiness any longer but it remains at least an island of growth in a still recessionary Eurozone sea.
Tuesday, January 15, 2013
Monday, January 14, 2013
Thursday, January 10, 2013
Still enjoying the magic - ECB keeps rates on hold
As expected, the ECB left interest rates on hold in its first meeting of the year. The ECB is obviously still enjoying the magic of its OMT announcement, knowing that the fate of the recovery is now in the hands of governments and the private sector.
The ECB’s macro-economic assessment was almost a verbatim copy of the December assessment. The ECB still expects a very gradual recovery in the course of the year and seems to take comfort from the recent improvement in confidence indicators and financial markets. ECB president Mario Draghi pointed out that the most encouraging signal was coming from financial markets. Lower bond yields, higher stock prices, record-low volatility, strong capital inflows into the Eurozone, a halt of deposit flight in peripheral countries and a reduction of the ECB’s balance sheet were on Draghi’s long list of illustrated market improvements. However, Draghi did not become overly enthusiastic, stressing that up to now there were no signs of an improvement of the real economy and that any recovery in the course of the year would be subdued. As a consequence, the risks to the ECB’s macro-economic analysis remained unchanged: risks to growth remained to the downside, while risks to price stability remained balanced.
According to Draghi’s comments, the call for a rate cut within the Governing Council has all but disappeared. In our view, another rate cut is therefore finally off the table. unless a renewed worsening of the economy would emerge.
Even if Draghi said that it was too early to declare victory and hesitated to adopt the latest improvement as the ECB’s success, today’s press conference had some hidden self-praise. The explicit reference to “reduced fragmentation” of financial markets as potential source of the expected recovery and the fact that “uncertainties about the resolution of sovereign debt and governance issues” disappeared as a risk to growth was a clear backslapper, at least for insiders.
It is obvious that the ECB enjoys its role as the successful crisis manager who averted an imminent break-up of the monetary union. The pure announcement effect of the ECB’s OMT programme has been so powerful in bringing down sovereign spreads and improving market conditions that the activation of the programme might never be needed.
Looking ahead, however, the ECB’s role as Eurozone crisis fighter might become less glamorous than in 2012. Simply because the ECB has run out of options to stimulate the real economy. Using the last ammunition left, a rate cut, would hardly have any impact on the real economy. It is hard to see that the ECB could invent anything similar to an OMT for the real economy. This means that while enjoying the magic, the ECB will secretly keep its fingers crossed, hoping that better financial market conditions and structural reforms eventually really lead to an economic recovery.
The ECB’s macro-economic assessment was almost a verbatim copy of the December assessment. The ECB still expects a very gradual recovery in the course of the year and seems to take comfort from the recent improvement in confidence indicators and financial markets. ECB president Mario Draghi pointed out that the most encouraging signal was coming from financial markets. Lower bond yields, higher stock prices, record-low volatility, strong capital inflows into the Eurozone, a halt of deposit flight in peripheral countries and a reduction of the ECB’s balance sheet were on Draghi’s long list of illustrated market improvements. However, Draghi did not become overly enthusiastic, stressing that up to now there were no signs of an improvement of the real economy and that any recovery in the course of the year would be subdued. As a consequence, the risks to the ECB’s macro-economic analysis remained unchanged: risks to growth remained to the downside, while risks to price stability remained balanced.
According to Draghi’s comments, the call for a rate cut within the Governing Council has all but disappeared. In our view, another rate cut is therefore finally off the table. unless a renewed worsening of the economy would emerge.
Even if Draghi said that it was too early to declare victory and hesitated to adopt the latest improvement as the ECB’s success, today’s press conference had some hidden self-praise. The explicit reference to “reduced fragmentation” of financial markets as potential source of the expected recovery and the fact that “uncertainties about the resolution of sovereign debt and governance issues” disappeared as a risk to growth was a clear backslapper, at least for insiders.
It is obvious that the ECB enjoys its role as the successful crisis manager who averted an imminent break-up of the monetary union. The pure announcement effect of the ECB’s OMT programme has been so powerful in bringing down sovereign spreads and improving market conditions that the activation of the programme might never be needed.
Looking ahead, however, the ECB’s role as Eurozone crisis fighter might become less glamorous than in 2012. Simply because the ECB has run out of options to stimulate the real economy. Using the last ammunition left, a rate cut, would hardly have any impact on the real economy. It is hard to see that the ECB could invent anything similar to an OMT for the real economy. This means that while enjoying the magic, the ECB will secretly keep its fingers crossed, hoping that better financial market conditions and structural reforms eventually really lead to an economic recovery.
Grieks déjà vu voor Mutti
De Duitsers houden van 'Mutti'. Angela Merkels ster straalt aan het begin van dit verkiezingsjaar op ongekende hoogte. Haar grote tegenstander, de socialist Peer Steinbrück, schiet zich permanent in de eigen voet met graaiverhalen. Het beroemde Merkelse 'doormodderen' is inmiddels zelfs sexy geworden. En toch, een garantie voor een derde termijn is dat niet. Angela Merkel heeft op dit moment namelijk een Grieks déjà vu.
Merkels huidige regering is niet bepaald een succesverhaal. Wat in 2009 nog als een droomhuwelijk begon, ontpopte zich zeer snel tot een soapopera van huwelijksconflicten. Zo volgden in snel tempo de vertrekken van de elegante, maar niet zeer wetenschappelijke, Zu Guttenberg, de door verwaarlozing gefrustreerde bondspresident Köhler en het politieke brekebeentje bondspresident Wulff. De populariteit van Angela Merkel heeft daaronder niet geleden. Integendeel.
De verliezer in het droomhuwelijk is de liberale coalitiepartner, de FDP. De niet-waargemaakte beloften van belastingverlaging, het cliëntelisme voor hoteliers en artsen hebben het imago van de partij enorm beschadigd. De partij is in een identiteitscrisis beland en heeft sinds de Bondsdagverkiezingen van 2009 een reeks zware nederlagen geleden in de deelstaten. FDP-bashing is in de mode en ook de partij zelf doet aan nietsontziende zelfkastijding.
Angela Merkel kijkt zwijgend toe. Wat kan het haar schelen? Minder stemmen voor de FDP zijn vaak meer stemmen voor de CDU. Zo wordt de FDP gereduceerd tot het kleine noodzakelijke kwaad van deze coalitie. Desnoods stapt Merkel na de verkiezingen in het bootje met haar concurrent Peer Steinbrück en komt er een herhaling van de grote coalitie van de periode 2005-2009. De verkiezingscampagne van Merkel is daarom ook helder: de fouten niet zelf maar door anderen laten maken en in september de coalitiepartner zelf kiezen.
De strategie van Merkel werkt echter alleen maar zolang de FDP de verkiezingsdrempel haalt en ook in de volgende periode weer in het parlement zit. Als de FDP in het niets oplost en Merkels CDU geen absolute meerderheid haalt, is er een grote kans op een linkse regering onder Peer Steinbrück, met andere linkse partijen, en is het politieke leven van Merkel afgelopen.
Voor Angela Merkel wordt de FDP daarom steeds meer het Griekenland van de Duitse politiek. Ongeliefd, maar onvermijdelijk en niet in staat zichzelf te redden. Merkel kan met een kleine en zwakke FDP leven, maar niet zonder. Net als een grexit zou een 'FDP-exit' grote politieke gevolgen kunnen hebben.
Het is onduidelijk welke reddingspakketten Merkel voor de liberale partner kan bedenken. Misschien uitgeleende stemmen in plaats van uitgeleend geld? Hoe dan ook, uiteindelijk zal zij - net als bij Griekenland - uit puur eigenbelang een hand moeten uitsteken.
Deze column verscheen vandaag in het Belgische dagblad 'De Tijd'.
Wednesday, January 9, 2013
Too little, too late? German IP stabilises in Nov
Industrial stabilisation. After three consecutive months of decline and an accumulated drop of more than 4%, German industrial production finally showed some signs of stabilisation. In November, industrial production increased by a meagre 0.2% MoM, from a 2.0% drop in October. On the year, industrial production is down by 2.9%. The drop was driven by a decline in the production of consumer goods (-2.2% MoM) and energy (-3.3% MoM). The construction sector grew by 1.0%, from -1.6%.
Today’s data is the final piece of evidence of an entire batch of industrial data, showing that the German economy has slipped into contraction in the fourth quarter. Comparing October/November with 3Q, retail sales are down, net exports have turned into a drag on growth and the construction sector has also weakened. It would need an unrealistic economic miracle in December to still avoid the contraction.
Looking ahead, however, strengthening external demand and sound domestic fundamentals should lead the way out of contractionary territory in the first half of this year. The lagged impact of higher wages should offset a slight worsening of the labour market and low interest rates combined with pent-up investment should support domestic demand. At least in Germany, the pass-through of low ECB rates and bond yields to bank lending rates seems to function properly.
All in all, this week’s data have provided more evidence that the German economy should have experienced the worst growth performance in 4Q since the first quarter of 2009.
Today’s data is the final piece of evidence of an entire batch of industrial data, showing that the German economy has slipped into contraction in the fourth quarter. Comparing October/November with 3Q, retail sales are down, net exports have turned into a drag on growth and the construction sector has also weakened. It would need an unrealistic economic miracle in December to still avoid the contraction.
Looking ahead, however, strengthening external demand and sound domestic fundamentals should lead the way out of contractionary territory in the first half of this year. The lagged impact of higher wages should offset a slight worsening of the labour market and low interest rates combined with pent-up investment should support domestic demand. At least in Germany, the pass-through of low ECB rates and bond yields to bank lending rates seems to function properly.
All in all, this week’s data have provided more evidence that the German economy should have experienced the worst growth performance in 4Q since the first quarter of 2009.
Tuesday, January 8, 2013
German economy remains in contraction territory
Joining the Eurozone’s race to the bottom? Today’s German data sent two main messages: i) the economy has clearly entered contraction territory in 4Q, and ii) the path out of contraction will not be an easy one.
This morning, the statistical office reported that German exports dropped by 3.4% MoM in November, the sharpest monthly drop in more than a year. At the same time, imports decreased by 3.7% MoM, narrowing the seasonally-adjusted trade balance to 14.5 bn euro, from 14.9 bn in October. The November numbers are not a one-off but an extension of the current trend of weakening exports. Since May 2012, German exports have dropped by around4% on the back of a weakening global economy. Today’s data confirmed our view that exports should have turned from driver of growth into drag on growth.
Looking beyond the 4Q, latest positive sentiment indicators, like the prominent Ifo, have signalled a quick rebound of the economy in the first quarter. With a pick-up of global demand, exports could quickly return as the reliable growth driver. However, latest new order data illustrate that the way out of contraction will not necessarily be a straight upward-sloped line. German new orders dropped 1.8% MoM in November, from a 3.8% increase in October. While domestic new orders increased by 1.3% MoM, orders from non-Eurozone countries dropped by 6.5% MoM.
Thanks to its solid economic fundamentals and stable domestic demand, the German economy should not join the race to the bottom many other Eurozone countries are currently in. However, the German economy could end up humming the “things-will-get-worse-before-they-get-better” tune still for some time.
This morning, the statistical office reported that German exports dropped by 3.4% MoM in November, the sharpest monthly drop in more than a year. At the same time, imports decreased by 3.7% MoM, narrowing the seasonally-adjusted trade balance to 14.5 bn euro, from 14.9 bn in October. The November numbers are not a one-off but an extension of the current trend of weakening exports. Since May 2012, German exports have dropped by around4% on the back of a weakening global economy. Today’s data confirmed our view that exports should have turned from driver of growth into drag on growth.
Looking beyond the 4Q, latest positive sentiment indicators, like the prominent Ifo, have signalled a quick rebound of the economy in the first quarter. With a pick-up of global demand, exports could quickly return as the reliable growth driver. However, latest new order data illustrate that the way out of contraction will not necessarily be a straight upward-sloped line. German new orders dropped 1.8% MoM in November, from a 3.8% increase in October. While domestic new orders increased by 1.3% MoM, orders from non-Eurozone countries dropped by 6.5% MoM.
Thanks to its solid economic fundamentals and stable domestic demand, the German economy should not join the race to the bottom many other Eurozone countries are currently in. However, the German economy could end up humming the “things-will-get-worse-before-they-get-better” tune still for some time.
Monday, December 31, 2012
Van modder naar goud?
Uit puinhopen herrijzen*, modder wordt goud
Begin 2025 is de eurocrisis eindelijk achter de rug. Na de mislukte Lissabon en EU2020 strategieën is het tijd vooruit te zien. De Europese Commissie gaat op zoek naar een nieuwe slogan.
Het crisismanagement van de afgelopen vijftien jaren stond in het teken van doormodderen. Geen snelle beslissingen, maar tastend uit de crisis. Een doormodderstrategie op twee sporen: een structureel herstel van de weeffouten van de monetaire unie en tegelijkertijd het opruimen van het puin uit het verleden.
De Eurozone kreeg uiteindelijk geen “total make-over” met plastische chirurgie, maar een herstel met beademing, infuus en pijnlijke operaties. Na deze ingrepen staat er in 2025 geen centralistische Europese superstaat, maar een ingewikkelde constructie van een ex ante beleidscoördinatie. De Europese Commissie heeft weer meer, maar geen alomvattende, macht gekregen. Angelsaksische waarnemers snappen de besluitvorming en machtsverdeling in Europa nog altijd niet en denken bij six- en two-packs eerder aan buikspieren of rappers dan aan een preventief doorgrijpende centrale instelling. Een recht-toe-recht-aan alternatief met zichtbaar nationaal soevereiniteitsverlies konden politici thuis echter niet verkopen.
De nieuwe hoofdrolspeler in de Eurozone is het Europees Stabiliteits Mechanisme (ESM). Na lange onderhandelingen is het ESM niet louter een noodfonds meer voor landen, maar ook verantwoordelijk voor de afwikkelingen van banken. Het ESM is de onafhankelijke, analytische waakhond geworden, die de Europese Commissie nooit mocht zijn. In combinatie met nationale schuldenremmen zorgt het ESM soeverein voor houdbare overheidsfinanciën in alle Eurozone landen.
De make-over van de monetaire unie was alleen mogelijk omdat de crisis hardnekkig aanhield, anders dan veel Europese politici in 2012 hun kiezers voorhielden. Sneller dan verwacht stonden de regeringsleiders van Duitsland, Nederland en Finland voor de keuze “break-it-or-pay-it”. De mix van langdurige recessies, hoge werkloosheid en pijnlijke structurele hervormingen bleek explosief en kon zelfs niet door een gemeenschappelijk bankentoezicht noch door ingrepen van de ECB worden bestreden. Door de sociale onrust en het toegenomen nationalisme gleed de Eurozone meermaals langs de rand van de afgrond en werd het betaaldag. Schuldkwijtscheldingen en een systeem van sociale transfers waren het gevolg. Toch zijn de meeste periferielanden ook na vijftien jaar, gelijk Oost-Duitsland na de eenwording, nog steeds achterstandsregio’s met hoge werkloosheid en een “brain drain”.
De Eurozone is in het jaar 2025 stabiel, maar vergrijzing, het tekort aan eigen grondstoffen en economische machtsverschuiving naar opkomende landen maken van Europa eerder een toeristische bestemming dan een trots industriecontinent. Maar weer eens een nieuw groeitstrategietje doen, denkt de nieuwe president van de Eurozone, de 71-jarige Angela Merkel en presenteert de nieuwe toekomstvisie voor Europa: uit puinhopen herrijzen, modder wordt goud.
Dit stuk verscheen eerder in het Nederlandse NRC Handelsblad
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