Growth is good. So, even at a revised 0.1%, German GDP growth could still be considered good. Sure, it wasn’t as much as economists had forecasted, but growth still beats recession – especially, after several months where the economic malaise in the Eurozone threatened to turn into a Teutonic Plague as well. The actual German output data has been much better than the dreary business surveys. Manufacturing orders (up more than twice what was forecast), industrial production (up 1.2% versus expectations of -0.1%), trade (surplus of€18.8 billion), and consumption all looked strong as the first quarter ended.
And while things may not look great for Germany on a historical basis, they do look somewhat better relative to other Eurozone members. In fact, there was a report from Bloomberg that German buyers were snapping up vacation homes in northern Italy that the Italian locals could no longer afford. While this may actually further the enmity that already exists between Germans and Italians, it does highlight the contrast with Italy’s 0.5% GDP contraction.
The dip in German growth has been enough of a wake-up call that finance minister Wolfgang Schäuble has indicated that he would support the easing of austerity measures for the debt-laden Eurozone countries. There are probably two reasons driving that. First, it’s become painfully clear that the recession is hurting most pro-austerity arguments. With tax revenues falling faster than spending can be cut, the deficit and debt problems just keep getting bigger. The second reason is that markets are now comfortable with new borrowing. With the ECB backing the currency, interest rates have come down to more reasonable levels and investors are willing to buy new bonds as they come to market.
You can see more of our thoughts on the situation in Europe, as well as some ideas on China’s economic recovery in our weekly Economic Insights.
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