Thursday, May 11, 2006

Italy Outperforms Germany

Today was a "big bang" day in terms of Euro zone growth statistics, with four (Germany, Italy, Spain and Holland) out of the five biggest economies plus Finland issuing the first estimate of first quarter GDP. Growth was lower than expected in Germany, Holland and Finland, while being stronger than expected in Italy.

Worth noting is that growth was 2.4% at an annual rate in Italy versus 1.6% in Germany. And while quarterly changes tend to be somewhat erratic, the 12 month change too was slightly higher in Italy than in Germany (1.5% versus 1.4%. All numbers are calendar adjusted). This again illustrates the fallacy of the widespread theory that it is relative unit labor costs that is the root of Italy's problem. As the case of Germany with its falling relative unit labor costs illustrates, lower unit labor costs may strengthen the sector with tradable goods, but it also increases relative costs for the domestic sectors.


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