Some Germans and their politicians like to think of their country as the growth “locomotive” of the euro zone. Today’s initial GDP estimates bear out this claim, yet do little to solve the euro zone’s persistent problem of diverging growth trends.
Europe's problems cannot be overcome by the strong economies of countries like Germany, Switzerland, and Austria. The negative numbers from Spain, Greece, and France are pulling the "euro zone" down.
In adjusted terms, quarterly growth was 1.5%, well above economists’ forecast of 0.9%. Adjusted yearly growth of 4.9% was the highest ever recorded since pan-German data became available in 1991. Growth even reached its pre-crisis level, meaning that we can stop talking about “the recovery.” Indeed, the economy is healthy and hale.
The poorly-performing countries in the "euro zone" and in the rest of the world need to study the models set by Germany and its neighbors (including Poland and the Czech Republic). Greece, in particular, is a drag on European economics. The mixture of private debt and public debt in the United States is a drag on the world's economy.
There are clear signs that the euro zone is experiencing a degree of decoupling with countries following divergent paths. For example, French growth surged in the first quarter and Dutch, Belgian and Austrian GDP also grew by or at around 1.0% on the quarter. Meanwhile Portugal’s economy contracted by 0.7% while Spain’s expanded by a modest 0.3% for the first quarter.
Although central Europe can't single-handedly rescue the entire euro zone, it is at least helping to keep it afloat in the short run:
The German data showed broadly that the domestic economy made the main contribution toward output growth. For the euro zone as a whole, this is good, especially since it means German economic growth is going beyond its traditional strengths of exporting high-end machines and products.
Not only does Germany's growth keep Europe afloat, but it also gives the weaker-performing a potential trading partner:
A consumer-led development in Germany would mean that the country would up its imports, clearly benefiting other economies in the euro zone. For example, German strength can help Spain “export itself out of trouble,” Berenberg economist Holger Schmieding wrote in a note following the German release.
If Germany has already worked itself out of the economic downturn, it may show the way to other countries.
While Germans are not known for their outward displays of emotion (unless it involves the national soccer team), they can take pride in their, now fully completed, economic rebound. Support of the labor market through subsidized lower working hours during the downturn helped keep people on firms’ payrolls. When global demand returned, the workers were there to produce. Now they themselves can spend. It’s a virtuous circle, which some call a miracle.
In any case, Austria, Switzerland, and Germany offer a model for other economies, momentum for Europe's and the world's economies, and potential business and trading partners for forward-thinking businesses.
