German companies are more optimistic than any time since 1992. That confidence, reported by the Deutscher Industrie- und Handelskammertag (DIHK), is increasingly shared by economists.
In the last three months, the average expected GDP growth for 2007 has increased from 1.7% to 2.4%, according to Consensus Economics. Goldman Sachs is calling for 3.1%.
This could be an echo of the Wirtschaftswunder. Of course, any new “economic miracle” will be less impressive than the reconstruction from the wasteland left after the Second World War. The recent German decline was only relative—productivity increased at a 1.6% annual rate in 1996-2006, compared with 2.3% in the US, according to the Groningen Growth and Development Centre. But the two periods do have a common feature—the ability of traditional virtues to triumph once an obstacle has been removed.
Then it was war, this time it is the country’s 1990 reunification. The direct cost of transfers to the former East Germany was €1.5 trillion, or nine months of GDP. The indirect cost—of diverting investment to the region’s dilapidated infrastructure and adding so many ill-trained workers to the labour force—was much higher. But the economic part of that transition is almost complete.
The middle-aged East Germans who couldn’t really adjust have mostly now retired, while new entrants to the workforce have no recollection of the Socialist work ethic. Germany can get back to doing what it has done well for a century and a half—investing in high technology and maintaining economic discipline.
Investment intentions are at record levels, according to the DIHK survey. Unemployment is down sharply, thanks to a combination of reforms and wage restraint—German unit labour costs declined 10% in 1996-2006 compared with a 10% increase in the UK. Some economists still believe that Germany needs a big dose of “Anglo-Saxon” medicine.
But the country has already changed in many ways. And with global interest rates on the rise, the low debts of Germany companies and households—a tradition that has been maintained—may turn out to be an advantage.
The German chamber of commerce (DINK) business survey for the second quarter slipped from a record positive balance of 36 to 35, with the assessment of the business situation remaining 2.2 standard deviations above the mean.
The expectations component increased from 17 to 24, a new r. German Gross Domestic Product increased 2.7% in 2006 and is currently expected to increase by 2.4% in 2007. Germany’s per capita GDP is $31,400, measured on a purchasing power parity basis, 72% of the US level.