What European Crisis? German GDP Growth Hits a Quarterly Record

by Martin Denholm

What European Crisis? German GDP Growth Hits a Quarterly Record

by Martin Denholm, Senior Editor

Tuesday, August 17, 2010

"What else have you got?"

That seemed to be the message from European investors on Monday, in response to Germany's record-setting quarterly GDP growth.

Still, you can hardly blame them, having been smashed around like baseballs at batting practice. The extent of the economic woes in Europe means they needed something more to satisfy their anxiety.

As it was, the German economy chalked up second quarter GDP growth of 2.2% - the best three-month period since the Berlin Wall crumbled in 1989 - as a weaker euro ignited the country's export market...

And the resurgent export trend is one that could fuel growth in the countries surrounding Germany, since German manufacturers use products in its goods that come from a variety of fellow Eurozone economies.

Speaking to BBC Radio 4, former Deutsche Bank Chief Economist Norbert Walter stated: "The Dutch economy, the Belgian economy and the Austrian economy will flourish in a month's time if the German economy is doing well because, [for example], no German car leaves the country without an axle that comes from Belgium."

Not only that, a strong German export market also bodes well for the global economy, given that it's the world's second-largest exporter behind China.

The news took economists by surprise, with the consensus growth estimate having fallen between 1% and 1.5% for Europe's largest economy. It also came on the back of an upward revision to first quarter growth - from 0.2% to 0.5%.

Question is: Will it continue?

The German Economy: Taking the Autobahn or Bus Lane?

Listen to those same analysts and you'll find that the German economy will veer off the Autobahn and into the bus lane. They're pegging the second quarter growth as a one-off and unsustainable for the remainder of 2010.

Maybe. But putting too much stock in analysts' views is a 50-50 business at best. They may sound certain, but they don't know for sure any more than you do.

For its part, the German government believes the figure will propel the economy to growth of "well above 2%" for the full year.

Germany Leads... And the Eurozone Follows

Germany wasn't the only European economy that notched up second quarter growth.

Across the region, the mood brightened, as several other economies reported positive growth.

  • France: Followed a 0.6% first quarter growth rate with a further 0.6% second quarter advance.
  • Spain: Saw GDP growth nudge 0.2% higher during the second quarter, having edged up 0.1% over the first three months of 2010.
  • Italy: Chalked up its second successive quarter of 0.4% GDP growth.
  • Greece: Still in the midst of a massive deficit-cutting program, the economy shrank by 1.5% between April and June.

Combined, the 16-nation Eurozone economy expanded by 1% during the second quarter - a significant improvement on the 0.2% growth recorded in the first three months of the year and its best showing in almost four years.

And although not part of the Eurozone, Britain also put in a good second quarter shift, with its economy up 1.1% - a surprisingly good number, given that the country is also just embarking on some serious budget-cutting measures.

Best regards,

Martin Denholm

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