German economy bounces back, boosting optimism | Business| Economy and finance news from a German perspective | DW | 05.08.2010
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German economy bounces back, boosting optimism

The German economy is riding high, with a wave of positive indicators and good quarterly results boosting overall optimism. But there are concerns that the second part of the year could put a damper on the party.

German optimism

Germans are feeling good about the economy these days

The economy in Germany appears to have left the financial crisis behind it, if the host of good news and positive numbers is to be believed. The recent flood of good economic tidings might even be described as an embarrassment of riches, especially given the dark mood over the past several years.

In July, the closely watch Ifo business climate index rose far above expectations.

The "increase is the biggest jump since the reunification of Germany," said Ifo President Hans-Werner Sinn, noting that confidence among the 7,000 German companies surveyed had reached a three-year peak. "The German economy is having a party again."

The European Central Bank reported an increased pace of credit growth to the private sector. It edged up to its highest rate in nearly a year. Loans to the private sector rose 0.3 percent compared with June 2009, up from 0.2 percent annual growth in May, the ECB said. The rate is still weak, but points in a positive direction.

More good news

Deutsche Bank increased its pre-tax earnings to 1.5 billion euros and software giant SAP reported a second-quarter profit increase of 15 percent. Automaker Daimler turned last year's second-quarter loss into profits of 1.3 billion euros.

World Cup fans

The World Cup raised German spirits, which helps the economy

The celebratory mood felt by industry and analysts is rubbing off on consumers as well. Despite the austerity program announced by the German government and higher health insurance premiums, German consumer confidence is up strongly. It has been helped by everything from expectations that economic recovery will keep unemployment down to the football world cup and sunny weather, according to a survey by Germany's GfK market research institute.

The institute said its forward-looking overall indicator for August rose to 3.9 points from 3.6 points in July, the highest level since November 2009.

Government economists said it is possible that the jobless rate will sink under the three-million mark in the fall.

Second-half blues?

However, there are voices that warn against too much optimism. They say while things are rolling along well now, the second half of this year could see a slowdown. The IWH Institute in Halle says it is keeping its champagne corked, since it predicts the recovery will slow by the end of this year. Berlin's DIW economics institute also predicts a "slower dynamic" for the final six months of 2010.

Siemens plant in Leipzig

Some worry slowing Chinese growth could hurt German export numbers

The fault lies with the weak economy in the US and a slowdown of growth in China, which could hit German exports. The rigorous austerity programs that nearly all eurozone countries have embarked on could also kill the party buzz.

But according to Michel Heise, chief economist at the Allianz Group, there is still reason for optimism despite the consolidation programs. He does not think they are hard or far-reaching enough to slam the brakes on a recovery.

"That's due in large part of the depreciation of the euro, which has brought about an economic boost," he said. "It could increase exports from eurozone countries by up to four percent, which is naturally good for the economy."

Under capacity

Others are more cautious with their rosy outlooks, including Sinn of the Munich-based Ifo institute.

euro notes and coins

The euro's fall in value made German exports more attractive

Despite the excellent figures in the business climate index, he worries about exports falling due to weakening economies in some other countries; the government's money-saving program, which could dampen consumer demand; as well as anemic growth in investments. His institute predicts investment levels will rise only one percent this year.

The reason for that is that many firms are not yet operating at capacity and are therefore less likely to need, for example, new machinery.

"The mood is better than actual conditions are right now," said Michael Groemling from Berlin's DIW. "Still, optimism is strong in Germany, especially in industrial companies. That's very good news at the end of the day."

Author: Rolf Wenkel (jam)
Editor: Sam Edmonds

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