Analysts astonished by record German growth

12th January 2011, Comments 0 comments

Germany's economy, the biggest in Europe, mounted an astounding rebound in 2010 to post record growth of 3.6 percent, leaving eurozone partners in its wake.

Provisional figures released on Wednesday by the national statistics office showed the county had bounced back from a 4.7-percent contraction in 2009, its worst since World War II, with its strongest gain since reunification in 1990.

That meant the German economy grew by more than double the figure of 1.6 percent that France, the other core eurozone country, hopes to achieve.

UniCredit economist Andreas Rees called it "one of the most mind-boggling turnarounds in German economic history" as the nation leapt "from annus horribilis to annus mirabilis."

The news came as the European Commission urged the 17-nation eurozone to act fast on the debt crisis amid fears that Portugal might need a bailout.

Commission president Jose Manuel Barroso pleaded for an increase in the 440-billion-euro European Financial Stability Facility (EFSF) to reassure bond markets that the eurozone's stability was not in question.

Berlin and Paris quickly voiced opposition however, with German spokesman Steffen Seibert telling reporters the government felt "that it makes no sense, and first and foremost that it is unnecessary, to talk about expanding the rescue mechanism."

The public deficit in Germany, the main contributor to eurozone bailouts, climbed to 88.57 billion euros ($115 billion) last year the national statistics office said, on government stimulus spending to reverse the country's fortunes.

That amounted to 3.5 percent of national output, clearly above the European Union limit of 3.0 percent but still low by comparison with the ratio in many EU countries.

Germany has been able to boost spending because it cut its deficit ahead of the global economic crisis and pushed ahead with labour market reforms that made its economy much more competitive.

"Germany is enjoying a golden decade," Berenberg Bank chief economist Holger Schmieding said.

"Reaping the rewards of fiscal prudence and structural reforms, the German economy is likely to remain the major engine of growth in Europe in 2011 and beyond," he added.

The European Commission is pressing other eurozone countries to reduce their debt and deficits to ease pressure from markets that could take aim at the much bigger economies of Italy and Spain.

Ways of increasing growth are also being desperately sought out because it is the only way to resolve the crisis in the long term.

German Economy Minister Rainer Bruederle noted Wednesday that "we grew by twice the European Union average" in 2010, and according to forecasts by the EU statistics arm Eurostat, only Slovakia and Sweden will post stronger growth, at 4.1 percent and 4.8 percent respectively.

German growth was better than that expected for the United States, at 2.7 percent, and Japan at 3.5 percent, but remained well below the level forecast for China of more than 10 percent.

Forecasts by the German central bank and Eurostat see German growth of more than 2.0 percent this year.

The Destatis data showed that overall domestic demand had played a large role in last year's result, accounting for 2.5 percentage points of the total, compared with 1.1 percentage points from trade with other countries.

"Domestic demand, and particularly corporate investment demand, turned out to be the driving force of growth dynamics in 2010," Barclays Capital economist Frank Engels said.

This year, "Germany can also look forward to stronger residential construction and house prices in its major metropolitan areas," Schmieding added.

© 2011 AFP

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