German economy bounces back, post-stimulus

Updated: 2010-07-21 15:18


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Perhaps the most remarkable aspect of Germany's performance during the crisis was its success in keeping down unemployment, which was tamed by widespread use of a government-backed program allowing companies to put workers on reduced hours in an effort to avoid layoffs.

The number of people involved in the program peaked at 1.5 million in May 2009 but has since shrunk as people return to full-time work. BMW, for example, had up to 24,000 employees on short work at the height of the crisis, but hasn't used it since January.

Germany's jobless rate was 7.5 percent last month, with some 3.15 million people registered unemployed -- relatively low by German standards and well below the double-digit figures now seen in other parts of Europe.

In 2009, domestic consumption "to some extent saved Germany from an even bigger crash," said Ulrich Kater, the chief economist at Deka Bank in Frankfurt.

"It was surprisingly stable -- that was, of course, due to the short-work solutions," he added, noting that "it would have been significantly worse if people had lost their jobs."

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The various government measures are all part of the reason for the upswing, "individual building stones in a gigantic building that worldwide economic policy has built in the past two years," Kater said.

Just as Germany was hit hard and fast by the crisis, its exposure to the world economy -- and to the benefits of stimulus programs and low interest rates elsewhere -- has helped it to a quick recovery, he argued.

In addition, labor-market and welfare reforms carried out under former Chancellor Gerhard Schroeder before 2005 helped make Germany's economy more stable and enabled it to "better withstand this storm," he said.

Kater said he expects growth of nearly 2.5 percent this year. But he cautioned that the second quarter "was clearly the high point of the recovery."

"This recovery won't break off, but it will become significantly slower," he said, adding that he still expects German production to reach its 2008, pre-crisis level in 2012.

Andreas Rees, an economist at UniCredit in Munich, said current indicators point to "a positive note" in economic data for the next few months but that businesses' and investors' outlooks are now darkening.

"After the harshest recession ever and the surprisingly strong upswing in the last 21 months, there are a lot of question marks and unknown quantities going forward," Rees wrote in a research note.

Among other things, "the fizzling out of the fiscal stimulus packages and the public spending cuts in European countries entail the risk of a stronger-than-expected setback," he said.

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