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Economy in Brief

German GDP Drops in Q3
by Robert Brusca November 13, 2008

German GDP drops -German GDP drops by 2.1% saar in 2008-Q3. As has been the case in Germany for sometime, the Bundesbank continues to blame the thrust of events on outside forces. Germany's Bundesbank said that the global growth slowdown was to blame for Germany slipping into recession this year, after gross domestic product data on Thursday showed that its economy shrank by 0.5 percent in the third quarter of the year.

Germany as Victim: "National production in Germany has significantly fallen in the summer ... compared to the previous quarter. The broad global economic slowdown is now increasingly making its presence felt," the German central bank said in a statement.

Germany as free rider - There is no disputing these facts but the Bundesbank does not point out that Germany has an economy geared to exporting and one that therefore is set to do better when the world economy does better and to do worse when the world economy does worse. Blaming the world economy in this circumstance is like the caboose blaming the engine for going too slow. This arrangement is one that Germany has sought and has prospered under in the past. Now that it is not working, it is not Germany’s fault. Right.

Germany as braggart laggard - In the chart at the top of this report notice that the RED German GDP line usually exceeds the blue line. The red line is for all of GDP. The blue line is for German domestic demand alone. Germany has been pulled ahead by the global economy consistently since 2003. I don’t understand all this complaining and the ongoing assertion of German superiority we have been hearing from the Bundesbank, from the German finance ministry and others. It has been about growth, the euro and German banks - everything.

Giving or taking? No one forced German banks to buy and hold the bad assets they have accumulated. Yet they did that and suffered after the Bundesbank assured us that German banks had no such problem. Germany is an intrinsically slow growing economy with a high rate of unemployment. Its choice has been to accept that and to seek growth through exports instead of though domestic means. At a time that the US has had a big payments imbalance, and developing countries were pursuing strategies of export-led growth, Germany would have contributed to the world economy more by putting its unemployed to work and by exporting less.

Global summit and blame: We are preparing for a global summit where countries will sit across the table from one another and listen to the pot calling the kettle black. Be sure that there will be a lot of blaming and evading of blame at this G-20 meeting. But be clear that as the center country in a currency system like this, if countries choose a lower rate VS the dollar, they get it, and the US gets the resulting deficit from trade.

What to fix: The currency monetary system is not set up to encourage currencies to trade at their proper parities or to remedy balance of payments imbalances when they arise. Breton Woods collapsed because of disputes arising over payments imbalances and the US tendency to grow faster than its trading partners (…and amass deficits and lose gold reserves). And now some 35 years later these same root differences are the nemesis of the Bretton Woods’ successor system of fluctuating exchange rates. It’s not a matter of ‘is Germany better’ but rather ‘is it doing its share?’ Is it contributing to the world order or is it adding to the burden or the excess? That is the real question.

German GDP
    Consumption Capital Formation   Domestic
  GDP Private Public Total Housing Exports Imports Demand
% change Q/Q; X-M is Q/Q change in Blns of euros
Q3-08 -2.1% #N/A #N/A #N/A #N/A #N/A #N/A #N/A
Q2-08 -1.7% -2.6% 1.2% -2.0% -13.5% -0.6% -5.3% -4.1%
Q1-08 5.7% -1.4% 4.6% 6.7% 24.6% 8.9% 13.2% 6.7%
Q4-07 1.4% -0.8% 0.2% 16.0% 1.6% 5.2% -1.2% -1.7%
% change Yr/Yr; X-M is Yr/Yr change in Gap in Blns of euros
Q3-08 0.8% #N/A #N/A #N/A #N/A #N/A #N/A #N/A
Q2-08 1.9% -0.9% 1.9% 6.5% 3.0% 5.1% 4.2% 1.1%
Q1-08 2.7% 0.5% 1.6% 8.8% 3.0% 6.7% 5.1% 1.6%
Q4-07 1.7% -1.3% 2.0% 8.3% -2.7% 3.2% 2.7% 1.4%
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