German growth predicted to decelerate


Even the mighty Germany industrial machine is under attack. Germany's central bank has slashed 2012 growth prospects to somewhere between 0.5% and 1% compared to 1.8% back in mid-summer.

A large fall and not hard to guess why (how can you grow if your neighbours can't afford your goods?).

Expectations snipped

"The German economy is likely to encounter a more turbulent phase in the coming months. External demand, in particular, has fallen markedly," the Bundesbank reported. It went on: "The industrial sector has now scaled back its export expectations to a level which is somewhat below the longer-term average."

So is Germany tipping into recession? Highly unlikely. While some of Europe has been groping towards some kind of recovery in the last two years, the German export machine has been thumping hard away, aided by a weaker euro. This kind of growth was not sustainable in post-unification Germany.

(Indeed the German economy grew by 2.2% in the three month at the end of June 2010, for example - the fastest quarterly sprint in more than 20 years.)

Xmas spenders

Aided by wage increases, German consumers are still opening their wallets and are expected to expand spending by a projected 1.5% to €78 billion in November and December, according to the German Retail Federation.

Yet retail consultants Conlumino claims retail sales in the 17-bloc euro zone overall will climb by just 0.8% year-on-year in December, thanks largely to increases in Germany and France.
Scrape inflation off that 0.8% figure and you get a substantial real-terms fall.

Longer term, that does not bode well for German exports. If inflation is successfully driven off (as Mervyn King expects/prays) across Europe, that will help though.

The Germans meanwhile are probably one of the few countries in the eurozone that can afford a few Christmas trimmings, despite a growth downgrade and super-generous - and on-going! - hand-outs to several impecunious near-neighbours.

True Christmas spirit and joy. Prost!
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