Whether or not Germany, as some recent news articles have suggested, has been disinclined to acknowledge its leadership role in Europe’s prolonged economic crisis, it is no great secret that the country has been Europe’s backbone over the past years.
Naturally, this has been and still is a huge burden to take on, one that would be best shared with at least one other country. But even though Europe is slowly hobbling forward now, Germany continues to play a pivotal role in the continent’s healing process particularly given the weakening state of the French economy. And though recent economic forecasts have highlighted some wear and tear on the German economy (the International Monetary Fund revised its GDP growth forecast for the Germany economy this year from 0.6% to 0.3%), experts incuding Anatoli Annenkov, senior European economist for Europe at Societe Generale in London, are nevertheless positive on Germany’s resilience thus far and its ability to continue carrying the load.
“We have taken a generally positive view on the German economy, although we had expected a fairly stronger rebound in Q1 this year,” Annenkov said. “Although private consumption has been driving growth, Germany did experience negative headwinds from the recession in the rest of Europe and several uncertain factors that happened over spring, like the Cyprus bailout, and these, combined with unusually cold weather, did have effects on Q1, but should lead to a rebound in Q2.”
Overall, of course, second half growth for Germany will be low at a forecasted 0.3%, but this “fits into the general image of Europe,” Annenkov said, where economic recovery is happening slowly. But Germany continues to have more resistance than other countries in Europe, he said, not least because its exports are more diversified than those of other countries. “So if the US is recovering, as we do expect, then Germany’s export sector should improve in the second half,” he said.
In fact, Germany’s greatest strengths have much to do with its highly competitive export sector, Annenkov believes, which generates healthy external surpluses, and a well-balanced fiscal framework that has resulted in sound public finances. In addition, Germany avoided building up excessive private sector debt and reformed its labor market in the last decade and this has given the economy a strong foundation.
“The challenges will be to maintain these comparative advantages, especially in light of a rapidly aging society – something that will require ongoing reform efforts,” Annenkov said.