A Year to Remember in German GDP Growth

May 24, 2011

Real GDP in Germany advanced 1.5% in the first quarter, or 6.1% annualized, and it wasn’t even the strongest quarter in the past year.  GDP had climbed by 12.1% in 2Q10, or 8.7% annualized.  Adjusted for working day variations, GDP was 4.9% higher in 1Q11 than a year earlier and 7.3% greater than the level in the first quarter of 2009.  Typical of Germany, growth has been led by exports and capital spending.  Breaking down the 1.5% quarter-on-quarter non-annualized advance in real GDP during 1Q11, one finds contributions of 0.6 percentage points (ppts) from construction, 0.5 ppts from net exports, 0.3 ppts from business spending on machinery and equipment and 0.2 ppts each from personal consumption and government expenditures.  All this was mitigated by a 0.4 ppt drag from inventories, which is usually a good sign for future growth. 

Between 1Q10 and 1Q11, machinery and equipment spending soared 18.6%.  Exports jumped 13.5%, and construction climbed 12.6%.  Personal consumption, government spending and imports lagged with gains of 1.9%, 1.4%, and 5.2%.  A 5.2% on-year advance in GDP not adjusting for working day variations resulted from contributions of 1.6 ppts from net exports, 1.1 ppts each from construction and machinery & equipment, 0.3 ppts from public spending and 0.1 ppt from personal consumption.  The current conditions component of the IFO business climate index printed at 121.4 in May 2011, 17 points higher than a year earlier.  Conditions are so good that there is no place for the trend to go but down.  So the expectations component of the IFO survey was 107.4 in May, down from 110.8 in February and 107.9 in May 2010.

After contracting 4.7% in 2009, real GDP recovered 3.5% in calendar 2010 and is expected to advance almost 3.0% this year.  When the European Monetary Union was launched, it was thought that the smaller economies would be the ones to reap the greatest benefit.  In fact, the biggest winner has been Germany, and so Germany stands to lose the most from a break-up of EMU.  The D-mark would shoot up like a rocket against the dollar and other European currencies, trimming back hard-won gains in German competitiveness.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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