Ups and Downs in Germany

eu.gifWell let us first begin with the good part of it as German industrial production increased markedly in August. Some commentators are even calling the Eurozone economy unstoppable.

'Industrial production in Germany rose the most in almost three years in August as Europe's largest economy heads for its fastest expansion since 2000.

Production jumped 1.9 percent from July, when it rose a revised 0.8 percent, the Economy and Technology Ministry said today in Berlin. August's gain was the biggest since October 2003. Economists expected a 0.3 percent increase, according to the median of 40 estimates in a Bloomberg News survey. From a year earlier, production rose 7.2 percent.

Germany's IW economic institute today raised its forecast for economic growth this year to 2.4 percent from 2 percent, as exports fuel domestic investment and spending. Growth may moderate next year after the European Central Bank raised interest rates five times in 10 months to quell inflation in the 12 nations that share the euro.

``There's a momentum in Germany and the euro zone at the moment that's almost unstoppable,'' said Stephen Webster, chief European economist at 4Cast Ltd. in London. Growth is ``surprising on the upside. The ECB is definitely going to raise rates again.'''


The 12-nation euro-region economy is also expanding at the fastest pace in six years, with the European Commission currently forecasting 2.5 percent growth this year. It's due to update its forecasts on Oct. 11.

Latest data ``suggest the global economy is doing better than people thought, and that benefits countries like Germany, the world's biggest exporter'' of goods, said Dario Perkins, European economist at ABN Amro Holding NV in London.'


Still, economic growth may slow next year as higher interest rates, slower global expansion and a sales-tax increase reduce demand for goods such as cars and mobile phones, the European Commission said Oct. 2.

European economic growth will slow to 2 percent next year, according to the International Monetary Fund. The U.S. will expand 2.9 percent after 3.4 percent this year, the Washington-based fund said Sept. 14. It forecasts the global economy will expand 5.1 percent this year and 4.9 percent in 2007.

So this is definitely good news but alas Germany cannot escape the realities of a slowing US it seems.

German exports unexpectedly fell in August as slowing U.S. growth damped demand for products such as cars from Europe's largest economy.

Sales abroad, adjusted for working days and seasonal changes, slipped 0.1 percent from July, when they increased a revised 2.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists predicted a 0.2 percent gain, according to the median of 14 estimates in a Bloomberg News survey.

The German economy is showing signs of losing momentum, after expanding at the fastest pace in five years in the second quarter, as a global slowdown hurts exports and executives become more concerned about the growth outlook. Companies may not be able to count on stronger domestic demand to bolster earnings with the government planning to raise value-added tax from 2007.


Growth in the U.S., the world's largest economy and destination for one-fifth of European exports, will slow to 2.9 percent next year from 3.4 percent this year, according to a Sept. 14 forecast by the International Monetary Fund. In comparison, the global economy may expand 5.1 percent and 4.9 percent this year and next, the Washington-based fund said.

As always with the myriad of confidence surveys and different comments from CEOs we want to be cautious. The fiscal outlook for Germany (and in other Eurozone countries for that matter) still looks grim, the US economy is in fact slowing, and the ECB will most likely continue on its vigilant path a couple of hikes more (the headline might be rising too). These, as I have stated so many times, are the fundamentals here. However, one thing which should make us think is how German companies could increase orders and production in August when at the same time demand from the US slowed down? Definitely a trend to watch out for but still I do not think we should forget the fundamentals here.