Tuesday, 1 February 2011

Germany - the beast is back

What is going on in Germany?

In the third quarter of last year, the German economy expanded 0.7 percent, and clocked up an annual growth rate of almost 4 percent. By recent historical standards, this was an impressive growth rate. In the previous 20 or so years, average quarterly growth was just 0.3 percent. So while the British economy shrinks, Germany is back on the steroids.

It does help to have a strong, competitive and innovative export sector. Sadly, the UK gave this away in the early 1980s, when Thatcher needlessly wrecked our manufacturing sector.

However, the surge in German growth raises a tricky question for the ECB. The eurozone economy has bifurcated. The centre seems to be hightailing it out of the recession. The periphery remains encased in a debilitating financial crisis. Moreover, eurozone inflation is picking up quickly.

Time for a rate hike? Recently printed German numbers say yes. Numbers coming out of the periphery say no.

1 comment:

Roy said...

Germany hasn't fully recovered yet.