Shiny luxury cars, sophisticated engineering goods, but penny-pinching consumers hoarding their meagre income – this cliché of the German economy looks increasingly off the mark. Europe’s largest economy is changing gears. Slowly but surely, Germany is weaning itself off its overdependence on exports. Its current economic upswing is driven by domestic forces.
The latest economic data is confirming the trend. Real wages in the first quarter jumped by the most in nearly three years. Consumer confidence, measured by market research group GfK, surged to the highest level in seven years, beating the estimates of the most optimistic analysts polled by Reuters.
Significant wage increases, low interest rates and record-level employment levels are fuelling a consumer spending spree. Foreign trade, the traditional engine of the German economy, is still patchy, as shown this week by dented business morale. The all-important Ifo business confidence index fell mainly due to weaker export expectations in manufacturing. But despite edging down for the second month running, the indicator still points to an ongoing upswing.
The rebalanced German economy will help the entire euro zone, which is still suffering from high unemployment and lacklustre economic activity. The country’s main euro trading partner, France, will only grow 0.7 percent this year, the French national statistics institute said on June 25.
Rising nominal and real wages in Germany mean that goods
“made in Germany” become relatively more expensive abroad, increasing the competitiveness of foreign rivals. Rising domestic spending simultaneously fuels German demand for imported goods. Hence Germany’s economic strength will partly spill over to its European peers.
Furthermore, a stronger domestic German economy may become the new normal. The country’s new minimum wage of 8.50 euros, to be implemented next January, will boost households’ purchasing power. Economic think tank IMK expects a real disposable income growth of 2.4 percent in 2015. Pent-up investment demand in the corporate world, which acted cautiously throughout the euro crisis, will be an important driver. Looks like the time has come to ditch some hackneyed views about the German economy.
Source: Reuters
The latest economic data is confirming the trend. Real wages in the first quarter jumped by the most in nearly three years. Consumer confidence, measured by market research group GfK, surged to the highest level in seven years, beating the estimates of the most optimistic analysts polled by Reuters.
Significant wage increases, low interest rates and record-level employment levels are fuelling a consumer spending spree. Foreign trade, the traditional engine of the German economy, is still patchy, as shown this week by dented business morale. The all-important Ifo business confidence index fell mainly due to weaker export expectations in manufacturing. But despite edging down for the second month running, the indicator still points to an ongoing upswing.
The rebalanced German economy will help the entire euro zone, which is still suffering from high unemployment and lacklustre economic activity. The country’s main euro trading partner, France, will only grow 0.7 percent this year, the French national statistics institute said on June 25.
Rising nominal and real wages in Germany mean that goods
“made in Germany” become relatively more expensive abroad, increasing the competitiveness of foreign rivals. Rising domestic spending simultaneously fuels German demand for imported goods. Hence Germany’s economic strength will partly spill over to its European peers.
Furthermore, a stronger domestic German economy may become the new normal. The country’s new minimum wage of 8.50 euros, to be implemented next January, will boost households’ purchasing power. Economic think tank IMK expects a real disposable income growth of 2.4 percent in 2015. Pent-up investment demand in the corporate world, which acted cautiously throughout the euro crisis, will be an important driver. Looks like the time has come to ditch some hackneyed views about the German economy.
Source: Reuters
