The latest data on the German economy in 2011 | Q1 shows a 1.5% growth (quarter on quarter!), seasonally adjusted. That is good news, but especially the composition is worth a second look:
Investment, construction and consumption were the main drivers, the office said, adding that the trade contribution continued to contribute to growth albeit at a more moderate rate.
Of course, for regular readers of this blog, this is hardly surprising: Germany lost its low cost of finance in the late 1990s, and had to painfully adjust wages in order to become competitive (again). Its high current account surplus was therefore a sign of weakness rather than strength.
Now, as German wages have adjusted, unemployment keeps falling, the cost of finance is relatively low again and future monetary policy will be too loose for Germany for years to come, we would expect German investment and consumption to pick up and the economy to expand. I share the optimism of an analyst cited in the news who said:
Germany is on the verge of a ‘golden decade’.
The only thing that is missing for my explanation to be completely correct is a falling current account surplus, which in fact widened to €17 billion in March, albeit using unadjusted data. There might be some significant inertia in the adjustment within a monetary union. I remain hopeful that we will see a reversion later this year.