Headwinds for Germany

If the macroeconomic prophets raise their growth forecasts, it's time to worry. And in recent months, the choir of prophets sang songs of praise in unison harmony: Germany's economy was in for a period of sustained growth, they all said - the research institutes, the German government, the International Monetary Fund, all of them.

That seemed to make sense, because all the indicators were green: The euro was weak, oil was cheap, interest rates were almost at zero. Those are good ingredients for an upturn. In the fine print of the prognoses, of course, one could always find a proviso: Growth was expected, provided no disruptive factors came along and derailed it.

Reasons for the headwind

Some disruptive factors have come along and derailed Germany's economic growth. Some of them been in evidence for quite a while, but seem to be hitting harder now: Uncertain global political conditions; the weakening of the fracking boom in the USA coupled with a gyrating dollar-to-euro exchange rate, which has affected US imports of German goods; a recovery of oil prices from their low of around $50 a barrel just months ago, in January, to $67 today - that's a 34 percent increase and counting; and weakening emerging markets. Taken together, those are ingredients work against German economic growth.

None of this is really very surprising. One could not seriously expect that the oil price would remain as low as it was a few months ago for very long. The euro has partly recovered from its episode of weakness early this year - instead of approaching parity, a euro currently costs around 1.13 dollars. That hits the export-intensive German economy where it's most vulnerable, although we're still far from the five-year high of 1.47 dollars to the euro that was attained in mid-2011.

Minimum wage and emerging markets

The aggressive monetary policy of the European Central Bank seems to be having an effect: The recent period of extremely low, near-zero consumer price inflation seems to be ending, albeit slowly. Prices are rising again, and the ECB's target inflation rate of 2 percent seems likely to be reached fairly soon.

In Germany, one reason for that is the new minimum wage law, which took effect on January 1. Quite a number of services have become more expensive: Taxi fares are higher by 12 percent, haircuts on average by 3.6 percent, restaurant meals by 3 percent. These are likely one-off price effects, as wages of the most low-paid workers got a one-off boost up to the minimum wage, but they are significant.

Then there are the emerging economies, which picked up the slack in demand for German exports caused by economic contraction that occurred in parts of the eurozone since 2009. Wherever you look, there are problems that reduce demand for German goods.

In Russia it's because of lower oil prices and the sanctions imposed by the West. In China it's an attempt to rein in excessive bank debt growth. Brazil, hit by low commodity prices, is seeing soaring inflation and the economy is expected to go into recession this year. South Africa's GDP growth rate has declined in each of the past three years, down to just 1.4 percent in 2014. India's prospects are so dependent on the policies of one man, Prime Minister Narendra Modi, that they're difficult to call.

Given that 40 percent of German exports are shipped to these and other non-EU countries, one can begin to understand why the German economy lost some momentum over the first quarter of 2015.

The word of the day belongs to retiring BMW CEO Norbert Reithofer, who was able to present an excellent balance sheet at his last annual general meeting as head of the Bavarian automaker on Wednesday. He sounded a warning: Today's solid, carefully drawn plans can easily become tomorrow's wastepaper.

One would wish for the broader chorus of economic prophets to demonstrate a similarly sober sense of reality.