Saturday, August 27, 2011

Economic Growth in Germany Expected to Slow

Well That’s Just Great – Can’t Europe Have Any Good News?

The German economy is the key to European economic growth. Germany comprises as much as 30% of the economy of the Euro countries.  Germany is today the only country capable of helping the rest of Europe survive its wrong headed policies without having to go through a second recession.

Now reports are that the projected growth of the German economy is being downgraded, and that the German economy is joining the rest of the world in a period of slower growth.

GERECONGermany faces an "obvious slowdown" that may last the rest of the year, its finance ministry warned on Monday, days after Europe's largest economy reported an unexpected pause in what had until recently been a strong recovery.

Why?  Well Germany’s economic strength had been the result of strong export demand for its manufactured goods.  While a large portion of this demand comes from Asia and Latin America where growth is strong, a significant portion of the demand comes from Europe and America where growth is not strong.

German GDP growth jumped to 5.5%, at an annualized rate, in the first quarter, and some softening was widely anticipated last quarter. But a report last week showing just 0.5% growth, at an annualized rate, raised concerns that, like other industrial economies, Germany faces a lengthy stagnation if the global economy doesn't find its footing quickly.

In short, the German economy is weakening because its customers are experiencing weak economic growth.  And because Germany is the strongest of the western economies, it remains the major source of support for Europe as Europe struggles.  But politics have limited support in Germany for bailing out its neighbors, and slow growth will limit that support even more.

So while Greece’s economic troubles primarily affect the economy of  Greece, Germany’s slower growth will affect the economy of all of Europe, and result in Europe and Germany’s future slower growth. Slow growth is the legitimate offspring of slow growth. 

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