Wirtschaftswunder: German Economy Eclipses Pre-Crisis Levels

Wirtschaftswunder
German Economy Eclipses Pre-Crisis Levels

The German economy grew by a surprising 1.5 percent in the first quarter of 2011 and recorded its largest year-on-year growth since reunification. But the biggest European surprise was further south -- even the Greek economy is growing.

Economic crisis? What economic crisis? For Germany, at least, it would appear that the dark days of 2008 and 2009 are now history. According to numbers released on Friday by the Federal Statistics Office, the German economy grew by a surprising 1.5 percent in the first quarter of 2011 -- and the country's economic output has now exceeded the pre-crisis level of early 2008.

In comparison with the first quarter of 2010, the economic expansion was the largest year-on-year growth since reunification -- a plus of 5.2 percent. In the calendar year of 2010, the German economy grew by 3.6 percent.

Even more promising, the growth was not fueled entirely by exports. The Federal Statistics Office pointed to investments in the industrial and construction sectors as propelling growth. Domestic consumption, long an Achilles heel of the German economy, also drove expansion.

"The numbers prove that the German economy is gaining momentum again," said newly-minted Economy Minister Philipp Rösler in a Friday statement. "Germany is the economic engine among industrial nations, and not just in Europe."

To be sure, German exports continue to boom. Figures released earlier this week showed exports reached €98.3 billion ($140.5 billion) in March, their highest monthly figure since records starting being kept in 1950. Germany is the world's second largest exporter, behind China.

Continuing Quick Pace

Some observers were optimistic that growth would continue at a quick pace.

Wolfgang Franz, the chairman of the German Council of Economic Experts, has estimated that the German economy could grow "with a little luck" by 3.0 percent this year. "We have very quickly come out of the crisis of 2009 -- unexpectedly fast, and unexpectedly strong. And that will continue this year," he said on the morning news program of the German station ARD.

The euro zone's other leading economy, France, also showed growth in the first quarter, with a 1.0 percent increase in GDP.

Still, the International Monetary Fund (IMF) warned Thursday of a broadening of the euro zone's debt crisis. "In advanced Europe, policy makers need to take steps to restore confidence -- structural reforms, fiscal consolidation, and strengthening of the financial system, most notably in the euro area periphery," Antonio Borges, director of the IMF's European Department said in a statement Thursday.

But when it comes to the ongoing debt crisis facing the common currency union, there was a bright spot on Friday. Despite a massive pile of debt and ongoing doubts about its ability to avoid insolvency, Greece on Friday posted a bit of economic growth of its own. The Greek economy grew by 0.8 percent in the first quarter.

-- with wire reports

Wow! 1.5 percent is considered good news?!?!?! Holy crap! How bad has it been in Germany???

I thought the German economy was all that was holding up the EU - and it still may be, but 1.5 percent growth??? Damn! That's just horrible!

And yes... that the Greek economy grew at all certainly qualifies as good news, but I would not call 0.8 percent growth any reason to throw a party.

Wow! I had no idea it was as bad as all that over there.

Of course, we're not doing all that well either, our growth in the first quarter of this year was only 1.8 percent - and THAT is a truly bad number here (though it certainly beats negative growth). Economic forecasters are "predicting" future growth at between 3 to 3.5 percent. But I'll believe that when I see it.

1.5 percent growth a quarter is considered very good in Europe. 3%-4% annual growth is considered to be ideal for every developed nation. Where do you get the idea that 1.5% is that bad?

BubbleBliss wrote:
1.5 percent growth a quarter is considered very good in Europe. 3%-4% annual growth is considered to be ideal for every developed nation. Where do you get the idea that 1.5% is that bad?

I suppose because even with our alleged 1.8% growth we are still at 9% unemployment and things are still staggeringly bad here economically speaking. We haven't had unemployment this high for this long since the Great Depression. So I just can't imagine that a 1.5% quarterly growth is all that great. What are your current unemployment numbers with such anemic growth?

Germany has had pretty high unemployment ever since the reunification. Currently, it's at 6.3%, which is pretty good for Germany.
You also have to consider that while nations such as China, Brasil and Russia have a very high economic growth, that's due to their economies being much less developed than ours. 1.5% or 1.8% is not bad at all.

In the US, growth rates between 1.5-1.8% are historically associated with pretty bleak economic times:

• 1.54% in 1981, the economy that flushed Carter out of office.
  
• 1.5% in 1993, the economy that flushed HW Bush out of office.
  
• 1.79% in 2006. The fact that we didn't have negative growth until 2007 masks the fact that our rate of growth had been falling every year since 2004.

Those are by no means our bleakest years; I chose them because they are within the range we're talking about. Obviously things were much worse in 1991-1992, or 1974-1975, and 1981 was sandwiched between two years of negative growth. We don't seem to stay in the 1.5-1.8% range for very long. It's the kind of growth rate that characterizes the transition into or out of shitsville. I wouldn't call it any sort of number for us to shoot for. They're certainly below average, at least for the US.

But you have to consider, that we're just recovering from the recession.

BubbleBliss wrote:Germany has had pretty high unemployment ever since the reunification. Currently, it's at 6.3%, which is pretty good for Germany.
You also have to consider that while nations such as China, Brasil and Russia have a very high economic growth, that's due to their economies being much less developed than ours. 1.5% or 1.8% is not bad at all.

I quite understand that developing nations are going to post higher growth rates just due to catching up, but I do not see 1.5% or 1.8% as "not bad at all" for a developed nation. As Kronos accurately points out above, such growth rates are associated with poor economic times, at least here in the US.

BubbleBliss wrote:
But you have to consider, that we're just recovering from the recession.

Understood, and anemic growth is certainly typical for coming out of an economic trough. It's just not something I'd be popping the cork on the bubbly about. And here, it's still not certain that we will see a sustained recovery. Just the news on the housing market alone is causing talk of a double-dip recession.

I just read an article in The Economist. It explained this situation a little more. The 1.5% growth in Germany is per quarter, meaning that it would mean 6.1% annual growth, which is a very good growth rate.

Dayyum! 6.1% annual growth is more than "very good," it's fantastic.

Though as you note, the starting point is instructive.

Yeah. Though you have to consider that Germany has already returned to pre-crisis levels some time ago.

BubbleBliss wrote:
I just read an article in The Economist. It explained this situation a little more. The 1.5% growth in Germany is per quarter, meaning that it would mean 6.1% annual growth, which is a very good growth rate.

Can you give me the link for it? I would love to read it.

http://www.economist.com/node/18712882

"By contrast, the core of the euro area is basking in sunny economic revival. German output grew by a breathtaking 1.5% in the first three months of 2011 (6.1% on an annualised basis). "

BubbleBliss wrote:http://www.economist.com/node/18712882

"By contrast, the core of the euro area is basking in sunny economic revival. German output grew by a breathtaking 1.5% in the first three months of 2011 (6.1% on an annualised basis). "

Thanks buddy.