Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. German Consumption: Can't Win for LosingGermany has long been castigated for its relatively restrained consumer spending habits (though it's definitely a thoroughly consumerist place), and the emphasis of its policymakers, still shellshocked by the Weimar years, on monetary ueber-prudence. But, as this FT article documents, German consumption, spurred on by cash-for-clunkers as well as a governmnet-financed job-saving scheme and generous welfare benefits, actually grew impressively during the country's worst recession since World War 2 (at least during the last two quarters), at rates unseen since the end of the boom year 2006. So did this spending do anything to balance Germany's much-castigated current account surplus? Alas, no: imports lagged exports yet again. This should be a lesson for those hoping surplus export economies can shift, relatively quuickly and painlessly, to a model more dependent on domestic consumption.Car scrap scheme boosts German spending By Ralph Atkins in Frankfurt Financial Times Published: August 25 2009 09:08 | Last updated: August 25 2009 09:08 German consumers, long berated internationally for not playing their part in supporting a global economic recovery, have increased spending at the fastest rate for more than two years, boosted by the government's car scrappage scheme. Details of Germany's second-quarter growth figures showed consumer spending in Europe's largest economy rose by 0.7 per cent, extending a 0.6 per cent rise in the first quarter. That was the fastest quarterly rise since the last three months of 2006. The data helped explain why Germany, along with France, escaped recession ahead of the US and UK. Overall gross domestic product in Germany's export-led economy was up by 0.3 per cent in the second quarter, the federal statistics office confirmed. They also highlighted the success of the incentives Berlin has pioneered to encourage consumers to trade in old cars for new models. When the global economic crisis intensified late last year, Germany's government faced widespread criticism from abroad for not doing enough to stimulate its economy. Instead Berlin preached fiscal prudence and Peer Steinbrueck, Germany's finance minister, complained about the "crass Keynesianism" pursued by Gordon Brown, the British prime minister. In fact, the boost to the economy provided by Berlin's emergency packages was comparable with those of other countries taking into account automatic increases in state spending caused, for instance, by higher unemployment. German consumer spending may also have been boosted by historically low inflation rates. "Consumers have been prepared to step into the breach more than many, including myself, expected--a welcome, if not huge, boost to global demand," said Colin Ellis European economist at Daiwa Securities SMBC Europe. "But from a macro perspective Germany will 'live up to its international responsibilities' when the trade, or current account, surplus closes, and it actually got bigger in the second quarter." Read the rest of the article Labels: balance of trade, consumerism, consumption, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
