Trade wars and tariffs which once threatened the mighty export-led economy of Germany have in fact done nothing to dent it. The country has rebounded strongly from a slowdown early in the year as growth accelerated.
It recovered from its first-quarter slide to reach 0.5 per cent quarter-on-quarter between April and June, according to preliminary data from the federal statistics authority Destatis. Analysts surveyed by the data company Factset had predicted expansion would remain at the pace seen between January and March – a time when growth slowed to 0.4 per cent.
Alluding to the fallen idols of the national football squad, humiliated in Russia, ING Diba analyst Carsten Brzeski said: “Contrary to the national soccer team, the German economy did not have a rude awakening at the start of the summer.”
The figures showed Europe’s largest economy had grown 2.0 per cent year-on-year by the end of the second quarter – no small comfort to observers who feared a slowdown throughout 2018 after the weaker first three months.
Germany also outperformed the average of the 19-nation eurozone, whose growth slowed to 0.3 per cent between April and June. Growth was lifted by “positive domestic impulses,” Destatis said, with “increased spending on consumption by both households and the state.”
Low unemployment has helped drive domestic consumption. Germany now has its lowest jobless figures since reunification in 1990. This in turn has encouraged trade unions to demand higher wages in sectors like metalworking as increases have been relatively low since the financial crisis of 2008. Investment is up in equipment and construction industries thanks largely to low interest rates for enterepreneurs to take advantage of.
Booming Berlin
The rosy economic picture has forced Berlin to roll back on its unofficial slogan – ‘Poor but Sexy’ – coined after the fall of the wall and the collapse of western subsidies which kept it rich throughout the long years of the cold war.
For the past several years it has been the new digital economy and start-ups which have boosted the city’s fortunes. With the return of parliament, and its attendant lobbying and business associations, Berlin now enjoys above average growth rates and the property market has boomed. In fact it has boomed so much that the left-wing city government is now considering taking a leaf out of New Zealand’s book by banning the sale of property to foreigners.
In the last decade prices have doubled across the German capital. Despite some of the most comprehensive rental protections in major European cities, long-term Berliners are being forced out as property prices have skyrocketed.
Berlin Mayor Michael Müller has said the city was considering implementing the drastic step taken by New Zealand authorities in banning non-residents from purchasing property. “The Senator for Finance is working on proposals to prevent housing speculation. We are taking a constructive and flexible approach,” Müller said.
With American, Israeli and Russian investors making a significant impact on the property market, a new law forbidding foreign ownership could potentially impact a large amount of foreign investment capital. But it is not yet on the statute books and has not hit investment so far – nor the desire of international foundations to be represented in the city.
The Berlin Senate now has 939 foundations, including George Soros’ OSF, registered in the capital. Soon 150 people will work in OSF’s ‘Global Hub’ after it transfers entirely from Budapest.
The first employees are already working in Berlin at the famous Potsdamer Platz. “We want to network with the local scene, with other foundations, NGOs, activists, and think tanks,” said OSF Regional Director Jordi Vaquer.
But the rosy economic and cultural mood may not last. Germany is vulnerable to knock-on effects from Washington’s confrontation with China, one of the country’s biggest trading partners. Brexit also threatens the mom-and- dad ‘Mittelstand’ firms, along with the corporate giants, which currently trade directly and easily with the UK.
One survey suggested business in excess of €66 billion a year was at risk if the cliff-edge Brexit becomes reality with no trade deal in place for Germany and other EU nations. While economic growth has been good there are signs of of business and investor confidence falling back in recent months in response to President Trump’s tariffs and his aggressive rhetoric.
Nevertheless, “with the economy having grown in 34 out of the last 37 quarters, Germany remains on track for a golden decade,” ING analyst Brzeski added. “But trade tensions, geopolitical risks such as the slump in the Turkish lira and politicians’ slowness to invest and reform at home mean looking ahead, the challenges facing the German economy will increase rather than decrease.”