DIW Berlin: German economy grows 3.4 percent in 2010
Press Release of September 28, 2010
Experts claim no space for tax cuts and higher social spending
The German economy has recovered surprisingly well from the crisis. DIW Berlin estimates that the growth will continue – although in a less rapid pace than the first half year. “We reach a massive annual growth of 3.4 percent in 2010. In 2011 the German economy is expected to grow at a rate of 2 percent”, said Ferdinand Fichtner, Head of the new cross-sectional group on economic policy at DIW Berlin. “The strong growth also reduces the government deficit”, said Mr. Fichtner, “Nevertheless, the government should continue its austerity measures instead of wasting tax money.”
The German economy has recovered surprisingly well from the crisis. DIW Berlin estimates that the growth will continue – although in a less rapid pace than the first half year. “We reach a massive annual growth of 3.4 percent in 2010. In 2011 the German economy is expected to grow at a rate of 2 percent”, said Ferdinand Fichtner, Head of the new cross-sectional group on economic policy at DIW Berlin. “The strong growth also reduces the government deficit”, said Mr. Fichtner, “Nevertheless, the government should continue its austerity measures instead of wasting tax money.”
Exports drive the upswing
The growth in 2010 is mainly driven by exports. “Especially in emerging economies such as China, Germany has increased its market share”, said Christian Dreger, Head of the Macro Analysis and Forecasting Department. Especially the larger companies could benefit from this and keep on cutting back the short-time work through it. But a lot of exports contributing to the summer boom were delayed investments. “Because large economies like the U.S. and China are weakening now, the exuberant growth rats in exports will not continue”, Prof. Dreger said. For the whole year of 2010, DIW experts estimate a growth of over 15 percent and almost 8 percent for 2011. “The export production will reach the pre-crisis level soon.”
Consumers’ good mood leads to great domestic demand
In the second quarter of 2010, the consumption in private households has increased for the first time in one year – about 0.6 percent compared to the first quarter. In the coming quarters a strong consumption can also be expected. The economy experts at DIW Berlin attribute this to the stable prices and the positive developments in the labour market. “Next year there will be around 40.4 million people working - more than ever in the united Germany”, said DIW President Klaus Zimmermann when presenting the economic forecasts of the institute. “This provides a good atmosphere among consumers.”
Possible Economic Shock from USA and China
Because of the cooling of international trade, the growth on German economy next year depends heavily on private consumption. “The U.S. economy is already slowing down”, said DIW expert Ferdinand Fichtner. Especially the consumption there remains weak, since the people continue to struggle with high debt and unemployment. For China, the DIW economists estimate further high growth rates – which the German exports can also benefit from. However, the speculative overvaluation in the real estate market is a risk factor. “If the bubble explodes, the consecutive economic setback can also spill over to Germany due to the close trade relations”, said Dr. Fichtner.
Growth in the euro zone is drifting apart
The Euro countries are growing more unequally – in the second quarter, the growth ranged between 2.2 percent in Germany and -1.8 percent in Greece. Especially for the countries in the south and Ireland, the saving efforts will encumber the growth even longer. “The Euro crisis is not over yet. The capital markets continue to indicate a high degree of uncertainty. The government bonds risk premiums in some highly indebted countries climb to record high again and again”, said DIW President Mr. Zimmermann. In other countries, the situation in 2011 will continue to improve.
Federal government can not abandon austerity
“Despite the unexpected tax revenue, we find neither cause nor space for tax cuts and higher social spending”, said DIW President. The Maastricht Treaty and the debt brake would force the Black-Yellow coalition government to use the additional tax revenue for a faster financial restructuring. “We tend to assume that the exports will obviously weaken in the near future, therefore the domestic demand in Germany must stay stable.” The crucial factor is a stable job market, said Prof. Zimmermann. “The government must adjust to demographic changes and fight the skill shortage early. This will keep employment low and thus encourage households to consume more.”
The growth in 2010 is mainly driven by exports. “Especially in emerging economies such as China, Germany has increased its market share”, said Christian Dreger, Head of the Macro Analysis and Forecasting Department. Especially the larger companies could benefit from this and keep on cutting back the short-time work through it. But a lot of exports contributing to the summer boom were delayed investments. “Because large economies like the U.S. and China are weakening now, the exuberant growth rats in exports will not continue”, Prof. Dreger said. For the whole year of 2010, DIW experts estimate a growth of over 15 percent and almost 8 percent for 2011. “The export production will reach the pre-crisis level soon.”
Consumers’ good mood leads to great domestic demand
In the second quarter of 2010, the consumption in private households has increased for the first time in one year – about 0.6 percent compared to the first quarter. In the coming quarters a strong consumption can also be expected. The economy experts at DIW Berlin attribute this to the stable prices and the positive developments in the labour market. “Next year there will be around 40.4 million people working - more than ever in the united Germany”, said DIW President Klaus Zimmermann when presenting the economic forecasts of the institute. “This provides a good atmosphere among consumers.”
Possible Economic Shock from USA and China
Because of the cooling of international trade, the growth on German economy next year depends heavily on private consumption. “The U.S. economy is already slowing down”, said DIW expert Ferdinand Fichtner. Especially the consumption there remains weak, since the people continue to struggle with high debt and unemployment. For China, the DIW economists estimate further high growth rates – which the German exports can also benefit from. However, the speculative overvaluation in the real estate market is a risk factor. “If the bubble explodes, the consecutive economic setback can also spill over to Germany due to the close trade relations”, said Dr. Fichtner.
Growth in the euro zone is drifting apart
The Euro countries are growing more unequally – in the second quarter, the growth ranged between 2.2 percent in Germany and -1.8 percent in Greece. Especially for the countries in the south and Ireland, the saving efforts will encumber the growth even longer. “The Euro crisis is not over yet. The capital markets continue to indicate a high degree of uncertainty. The government bonds risk premiums in some highly indebted countries climb to record high again and again”, said DIW President Mr. Zimmermann. In other countries, the situation in 2011 will continue to improve.
Federal government can not abandon austerity
“Despite the unexpected tax revenue, we find neither cause nor space for tax cuts and higher social spending”, said DIW President. The Maastricht Treaty and the debt brake would force the Black-Yellow coalition government to use the additional tax revenue for a faster financial restructuring. “We tend to assume that the exports will obviously weaken in the near future, therefore the domestic demand in Germany must stay stable.” The crucial factor is a stable job market, said Prof. Zimmermann. “The government must adjust to demographic changes and fight the skill shortage early. This will keep employment low and thus encourage households to consume more.”
