The German economy has been one of the few bright spots in the global economy over the last few years. To be sure, it's not very bright . . . more like a night light than a shining beacon. But in the long darkness that seems to have settled over the rest of the developed world, that low-wattage glimmer of hope shines like the top of the Empire State Building.
German economic growth slowed to a near standstill in the second quarter of this year, dealing a further, unexpected blow to the crisis-hit eurozone.
The surprisingly-sharp deceleration in activity in Europe's largest economy hit overall eurozone growth and intensified fears about the global slowdown. It also threatened to complicate the challenge facing the region's policymakers as they seek to combat its escalating debt crisis.
German gross domestic product increased by only 0.1 per cent in the three months to June compared with the previous quarter, the country's statistical office reported. Germany had been a star performer among western industrialised economies in the first quarter of this year. But data for the first quarter were also revised down to show a rise of 1.3 per cent compared with the 1.5 per cent originally reported.
A few thoughts:
- Pundits should probably try to stop extrapolating guidelines for economic policy by comparing whichever country happens to be doing worst, with the one that is doing least badly. Germany's consensus based management and export focus was touted as a recession-fighting miracle by liberals, while its relatively modest stimulus was praised by conservatives. But these things may have been incidental rather than central to Germany's relatively mild recession experience. Our experience in the Great Depression seems to indicate that such recessions are long and painful, and that they do not always affect all countries the same way at all times. At any given moment, some country is going to be doing better than the others, while some other country is going to be doing worse. This is not necessarily related to policy.
- This is obviously a huge problem for the eurozone. Those who think that the euro can muddle through this without losing the periphery have been counting on Germany (and to a lesser extent, France) to deliver a bailout. A recession is going to erode Germany's economic ability to funnel cash into the PIIGS, but more importantly, it is going to make German voters much less patient with the notion.
- It's probably not so great for the rest of us, either. When the global economy is dealt a blow, we all get bruised.