Germany's Great GDP-Labor Market Divergence
But despite the alleged 0.3% yearly economic contraction, employment was actually up by 0.7% compared to Q1 2012, and up by about 0.25% compared to Q4 2012. But how can employment rise if production falls?
One possible explanation is that productivity is falling. That has been the main explanation for why Britain until the most recent months (in recent months employment has started to drop again in Britain) had a relatively high employment growth of nearly 2% while GDP growth was zero. This was reflected in the fact that average real wages dropped at a 2% rate.
But in Germany, real wages aren't falling, they're rising at a rate of nearly 1%, something that would suggest rising productivity.
This leaves us with two possibilities. One is that the GDP numbers underestimate true economic strength by not adjusting for terms of trade gains and the other is that German corporate profits are falling. My guess is that it's probably a combination of the two.