Thursday, August 26, 2010


While many market participants are currently debating the chances of a double dip and a global slowdown, German businesses are still gaining confidence. In August, the headline Ifo index increased to 106.7, from 106.2 in July; its highest level since June 2007. The current assessment continued its recent upward trend and increased to 108.2, from 106.8. At the same time, the expectations component dropped slightly to 105.2, from 105.5, but remains far above its historical average.

After impressive second quarter growth, it does not need a rocket scientist to come up with a 2010 growth forecast of around 3% for the German economy. At present, such a forecast seems to be rather cautious. Even if the economy was to stagnate in the second half of the year, GDP growth would already amount to 2.8% over the entire year. And stagnation does not seem likely. On the contrary, order books are still filling and there is anecdotal evidence of increasing backlogs and labour bottlenecks. Call this a luxury problem. Any future slowdown in global trade would take a while before it actually hit German industrial production. For the time being and for rest of the year, just processing the received orders could be enough to bring annual GDP growth to levels hardly seen since reunification.

Today’s Ifo index reflects untarnished confidence and bodes very well for near-term growth prospects. It might not be a new German “Wirtschaftswunder”, yet, and second quarter growth will remain exceptional. However, even with an inevitable shift into a lower gear in the second half of the year, the Eurozone’s growth engine will continue to run smoothly.

Friday, August 13, 2010

Crisis? What crisis?

According to a first Eurostat estimate, real GDP in the Eurozone increased by 1.0%QoQ in Q2 2010, from 0.2% in Q1. This is the strongest growth rate since Q1 2008. No components are available yet, but exports, investments and a catching up of the construction sector after a harsh winter should have been the main growth drivers.

Turning to the available country data, the recovery has gained traction in almost all Eurozone countries. Only Greece still experienced a sharp growth decline with a drop of 1.5% QoQ. All other countries have left recession, with Spain (0.2% QoQ) and Portugal (0.2% QoQ) still lagging behind. Core Eurozone countries were the best growth performers in the second quarter, led by Germany (2.2%), the Netherlands (0.9%), Austria (0.9%), Belgium (0.7%) and France (0.6%).

Today’s numbers are a clear sign that the Eurozone has coped with the sovereign debt crisis better than expected. Of course, the Eurozone growth story is still pretty much a German export story. Although several other core Eurozone countries also showed promising developments, it is too early to become overly enthusiastic. In particular, the Southern Eurozone countries are not yet out of the woods. Fiscal consolidation and structural reforms will first weigh on growth before they can become growth-supporting.

After three difficult months of Eurozone battering, today’s numbers will help to heal the Eurozone’s wounds. For the first time since Q2 2009, the Eurozone outpaced the US economy. However, one should not get carried away by emerging decoupling dreams. The last 40 years have shown that Eurozone decoupling from the US economy has always been an illusion. At best, only the Eurozone’s current main attraction, the German economy, has the potential to start a period of growth outperformance.

Playing in a league of its own

Today’s first estimate of German GDP growth in the second quarter confirmed an excellent growth performance. According to the first estimate by the German agency for statistics, the German economy grew by an impressive 2.2% QoQ in Q2 2010. This is the strongest quarterly reading since German reunification. Compared with Q2 2009, German GDP increased by 3.7%. The decomposition of the GDP numbers will only be published in two weeks but recent monthly data indicate that growth was driven by exports and investments, while the drop in private consumption should at least have come to an end. In addition, the numbers for the first quarter of 2010 were revised upwards to 0.5% QoQ, from 0.2%.

The strong Q2 performance of the German economy is impressive but not surprising. Structurally in a much better shape than many other industrialized countries, it was just a matter of time before the German economy would pick up further speed. In the second quarter, the German economy mainly benefitted from two factors: a catching up in the construction sector after the harsh winter and strong foreign demand for German goods.

Looking ahead, it is almost needless to say that the current growth momentum is hardly sustainable in the coming months. With the one-off impact from the construction sector and normalizing of export growth, German growth will return to more ordinary growth numbers. Nevertheless, despite an inevitable slowdown, all ingredients are there for the German economy to take the next step towards a self-sustained recovery. Confidence indicators are still at high levels, order books are amply filled and German job miracle is continuing. With more and more people returning from short-work schemes to full time schemes to work off increasing backlogs, some minor employment growth should not be excluded, further improving private consumption.

Today’s numbers are an impressive reminder that the German economy is currently playing in a league of its own. However, watch out not to get carried away by blind cheer. As much as the Q1 GDP numbers underestimated the real strength of the economy are Q2 numbers now overestimating it. As so often, the truth lies somewhere in-between. With some slowing down in the coming quarters, the German economy will rejoin the league of the other Eurozone countries. Nevertheless, the German economy should remain the top attraction of the Eurozone league for some time.

Thursday, August 12, 2010

Superman in Europa

Draagt Superman deze zomer zwart-rood-goud? In ieder geval de economische Superman van Europa. Het ziet ernaar uit dat het Duitse bureau voor de statistiek morgen een indrukwekkende groeispurt in het tweede kwartaal bekend zal maken. Misschien zelfs een van de sterkste kwartalen sinds de Duitse hereniging. Kan de Duitse economie die steile curve voortzetten en uitgroeien tot mondiale groei-Superman?

Inderdaad, verleidelijk vooruitzicht. De traditionele economische grootmacht, de Amerikaanse economie, staat er op dit moment niet zo goed voor. De kater na het uitlopen van de conjunctuurprogramma's is groot. De angst voor een dubbele dip heerst en het besef neemt toe dat het businessmodel van de Amerikaanse economie zijn beste tijd heeft gehad. Zonder radicale bezuinigingen kan de overheidsschuld tegen 2015 oplopen tot Griekse dimensies.

De industriƫle capaciteit in de VS lijkt al sinds de laatste conjunctuurcyclus te groot en moet worden gereduceerd. Ook de arbeidsmarkt heeft een structuurprobleem. Sinds 2008 is er een steeds zwakkere reactie van de werkloosheid op een stijging van de vacatures. Dat betekent dat werklozen niet passen bij het profiel van de vacatures of dat de crisis op de vastgoedmarkt de beroemde mobiliteit op de arbeidsmarkt belemmert. In dat geval is het enige antwoord op de Amerikaanse problemen geen nieuw stimuleringsprogramma, maar structurele hervormingen. En die zijn pijnlijk.

Europese optimisten dromen deze dagen dan ook weer van de onzalige 'decoupling', de loskoppeling van de Duitse en Europese economie van ontwikkelingen in de VS. Jammer genoeg heeft het idee van decoupling nog nooit de droomwereld verlaten. Sinds 1970 groeide de Duitse economie circa 35 procent van de tijd weliswaar harder dan de Amerikaanse economie, maar van uiteenlopende trends was alleen sprake tijdens de herenigingsboom begin jaren 90.

De Duitse economie komt goed uit de recessie en zal de conjunctuurlocomotief van Europa blijven. Misschien lukt het zelfs om de Amerikaanse economie nog een tijdje te overtreffen. Maar zoals vaker zijn macro-economische cijfers op het eerste gezicht misleidend. Ook de Duitse economie is niet onkwetsbaar. Het sterke tweede kwartaal is deels toe te schrijven aan een inhaalslag van de bouwsector na de zware winter. Ook de huidige dynamiek van de exportgroei lijkt op termijn nauwelijks houdbaar.

De binnenlandse vraag is weliswaar aan het stabiliseren, maar nog te zwak om de leidende rol van de export over te nemen. Lagere groei in de tweede helft van het jaar ligt in het verschiet. Dit jaar zal het Superman-pak nog zwart-rood-goud gekleurd blijven, maar jammer genoeg werd Superman tot nog toe na elke heldendaad steeds weer gereduceerd tot de alledaagse Clark Kent.

Deze column verscheen eerder in het Belgische dagblad "De Tijd".

Monday, August 9, 2010

Export recovery continues

German exports increased by 3.8% QoQ in June, from a May surge of 7.9%. At the same time, imports increased by 1.9%, from 13.7% in May. As a consequence, the trade surplus widened further to 14.1 billion euro, from 9.8 billion euro in May, supporting the strong pick-up in economic growth in the second quarter.

The German export sector remains the main driver of the recovery. Needless to say that the current export dynamics are not a new status quo. They will eventually slow down. However, with still strong demand, particularly from Asia, for goods “Made in Germany” and the lagging impact of the euro weakening in the first half of the year, German manufacturers are looking into a bright near term future. Filled order books speak volumes. As a consequence, further improvements in the manufacturing sector should once again stabilize the labour market. With more and more people returning from short-work schemes to full time schemes to work off increasing backlogs, some minor employment growth should not be excluded in the coming months.

With today's trade numbers, the time of nitpicking has come to an end. This week’s release of second quarter growth should be a cracker. Up to now, industrial production has shown an impressive performance and even private consumption seems to have stabilized. The German economy is bound to see its strongest quarterly growth rate since reunification.