Tuesday, May 15, 2007

German Growth Remains Strong

German GDP growth suprised on the upside, with GDP growing 0.5% compared to the previous quarter-despite the VAT increase. Private consumption fell back as a result of the VAT increase, but a soaring trade surplus helped sustain growth reasonably well.

Moreover, growth in the previous quarters was revised up so that year over year GDP growth in the fourth quarter was 3.9% in calendar adjusted terms, instead of previously estimated 3.7%. That number only fell back to 3.6% in the fourth quarter.

Germany is now in fact the fastest growing G7 country, as it have benefited from its free market reforms, while the other G7 countries are dragged down by cyclical or structural reasons. The cyclical component of growth is less important in Germany than in other parts of the Euro-zone as credit growth have been weaker. But on the other hand, Germany's shrinking working age population means that the expansion in the labor force created by reduced unemployment benefits is unsustainable.


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