German Domestic Growth Strong

Low unemployment, wage increases boost economy

Frankfurt, Germany. Frankfurt, Germany.

Many countries in the euro zone may have been dialing back on consumption or struggling to replace lost jobs, but not Germany. The country that has been outshining all its fellows in the bloc is exhibiting strong domestic growth, with low unemployment and wage increases fueling domestic demand. Even property prices are on the rise, in contrast with most other euro zone countries.

Bloomberg reported Wednesday that the formerly ailing German economy is robust and forecast to continue to make steady gains. It is doing so well that there is speculation it could even help other euro zone countries out of their difficulties, even as it makes a one-size-fits-all policy by the European Central Bank (ECB) more unsuitable.

Holger Schmieding, London-based chief economist at Berenberg Bank, the oldest bank in Germany, was quoted saying, “Ten years ago, Germany was the ‘sick man of Europe,’” but now, “Germany will enjoy a golden decade of more growth and employment with a healthy fiscal balance.”

According to David Owen, chief European financial economist at Jefferies International in London, consumer spending in Germany could increase by more than 2% in 2013, handily beating the country’s annual average of 0.75% that it has maintained since 1999. He estimated that, over the same period, export growth averaged about 2.25% a year and economic expansion 1.35%.

Owen was quoted saying, “When discussing prospects for Germany, the focus often revolves around the outlook for exports. However, there is certainly scope for German domestic demand to surprise on the upside.”

No silver lining is without its cloud, though. Alexander Koch, an economist at UniCredit Group in Munich, said in the report that a booming German economy could add complications to the ECB’s efforts to set uniform monetary policy and keep inflation just below 2%. He was quoted saying that Germany would “probably require higher interest rates if you look at it on a unitary basis.”

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