Investing

The Germany Economy's Turn to Fall Apart

Germany reported that its second-quarter gross domestic product rose only 0.1%. That disappointing number can be added to the U.S. growth rate of 1.3%, the 0.2% rate in the UK  and Spain’s 0.2% estimate for the period. And the eurozone’s GDP grew 0.2% in the second quarter, compared with the preceding three months, according to Eurostat. Those are the best of the numbers outside of emerging markets like China and India. Japan reported that its GDP fell 1.3% in the April to June period. GDP dropped 6.9% in Greece in the same time frame.

If this is not a recession, then what is?

Germany has regularly been described as Europe’s miracle economy, and in many cases, the miracle economy of the entire developed world. Germany has a highly skilled workforce, advanced engineering and manufacturing prowess, and a large pool of intellectual property that is probably not matched outside the U.S. and Japan. Germany’s $3.3 trillion GDP puts it just behind Japan and then China, where GDP has surged to $5.9 trillion. But China has over 1.4 billion people. Germany has 82 million. Productivity is one of Germany’s great economic assets.

Productivity obviously loses some of its advantages when demand tumbles. Germany now faces a period when it is the single most effective producer of high-end goods and some services, but it operates in a world of diminished demand. That period may be extended for some time if the global recession spreads.

Many of Germany’s largest companies cater to portions of the global economy that have been relatively stable so far. Its large car companies include BMW and Daimler. Its flagship tech company, SAP (NYSE: SAP), is a powerhouse in the enterprise technology business, which serves major corporations and governments around the world. Bayer and BASF are among the largest suppliers of advanced chemical goods in the world.

Germany’s success has been the trigger for healthy consumer demand within the country. Its stable economy has not made it a target for potentially crippling austerity measures. Relations with labor unions have been calm.

Germany’s GDP slowdown may be a sign that even the upper reaches of the global economy have begun to shudder — the places where consumers drive high-end cars and companies demand the best IT available in the world.

The new recession was supposed to pass Germany by. The country had too many things going for it — until now.

Douglas A. McIntyre

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