German Recovery

The second quarter growth figures of the German economy are startling. This is very good news. Germany demonstrates that it has the strongest economy in Europe, founded on manufacture and exports, which can take advantage of the weaker euro, weighed down by sovereign debt of southern euro zone countries. It also points the way forward for the U.K.

A factor in the German recovery is the willingness of consumers to spend some money. It is very intersting to compare the total foreign debt of the two countries. Germany stands at 1.5 x GDP. The U.K. is 4.5 x GDP. This is the core of the stronger German performance. In the U.K consumers are busy reducing their binge borrowings of the past. Comparing government debt shows less difference, both countries are hovering around 70%, but this will go up before it goes down.

Another key factor with the Germany economy is that it is based on exports and its industrialists have been very quick of the mark to develop new business in the cash rich new economies of Asia and South America. We have been very much focused on the imbalance of our trade with these economies, though less well focused on what to do about it.

It will not be surprising if Germany emerges as the strongest economy in the West. The economic challenges of re-unification have been mastered and there is now a fully operational united German powerhouse. We may find some surprises ahead. Meanwhile the figures should bring comfort to the beleaguered Merkel.