Third quarter GDP rose by a real 0.5% in the third quarter led apparently be private consumption expenditure and corporate investment, with little or no boost from net exports as imports expanded. Annual real GDP growth was some 2.6% year on year, which compared to historical growth rates, was respectable.
An increase in PCE is a welcome boost from an economy where private consumption expenditure generates, on average some 58% of GDP, but where the contribution of changes in PCE to GDP growth has been well below this in the last 10 years. Please note all German data is sourced from the Federal Statistics Office.
The chart below shows rolling 5 year changes in the PCE contribution to changes in GDP (5 year rolling).
Germany in the last decade has depended to a much greater extent on exports, with net exports generating more than 30% of GDP growth between 2004 and 2007. The following graph shows the 5 year change (rolling) in exports as a % of the 5 year (rolling) change in GDP.
Weakness in global demand would put a major source of growth in GDP, over the last 10 years especially, under pressure. Exports to the Euro area had weakened in the second quarter, according to the Bundesbank August monthly report (issued September), while exports to the non Euro area increased. Detailed data for the third quarter are not yet available.
However, just focussing on net exports ignores the wider German picture. As of the second quarter of 2011, exports were worth almost 50% of GDP. Compare this to the US where exports are less than 14% of GDP (US data sourced from the BEA), currently.
It should be clear that with such a large component of the economy dedicated to exports that a much higher % of economic activity is dependent on export industries. While the US needs to increase exports to grow and restructure, it is not as exposed as Germany is to a global decline in demand for exports. In a sense, the Euro zone, which has provided a stable source of demand for exports, is critical to German economic stability.
Industrial production and capacity utilization in Germany has recovered strongly post recession, unlike most other Eurozone economies, and German industry, prior to the recent declines in output and new orders, was operating towards the upper limits of historical capacity constraints.
Personal savings rates (see graph below) are also higher and consumer debt (61% of GDP) lower than in the US and other economies.
Government debt (central, state and local) as of the first quarter was some 82% of GDP and the budget deficit some 3.4% as of the second half of 2010. Current Euro zone risks suggests that government debt to GDP ratios could well rise further, placing additional stress on German economic growth going forward.
Consumer debt in the first quarter of 2011 was close to 61%, which is probably at a close to optimal level for an economy given its current growth rate.
While it has lower consumer debt, higher savings rates and one of the lowest unemployment rates in the developed world, Germany is far from immune to an economic slowdown, and is to a large extent more exposed to a decline in global demand and a collapse in the Eurozone economy than other economies.
Germany needs Europe, but it needs a Europe that is not going to drive it further into debt. Here lies the dilemma.