Obviously, there are differences between various crises. When they hit any economic periphery (like Greece), stock indices may ignore this fact or show minor reaction.
However, when a crisis hits a major economy like the USA, China or Germany, this may have a devastating impact on the global economy. They are major producers and consumers. They are the cornerstones of the global economic and financial system. These are like vital parts of a human body. Should one or some of them stop working properly, this may lead to diseases (equal to major recessions in the global economy).
As you know, the global economy is in decline due to multiple economic problems in the eurozone and the USA as well as the economic slowdown in China. However, more experts start talking about threats to the Germany economy, the eurozone’s locomotive.
Is the Germany economy really in jeopardy? Let’s try to answer this question together…
Suppositions Only
Obviously, the real state of affairs in the German economy is a riddle wrapped in a mystery. Like in the case with the USA and China, the Germany economic issue is rather a political issue. Too many aspects of today’s global world depend on such issues.
That is why the “powers that be” know the truth. Others have to make suppositions and guess as well as to find evidences and facts confirming their hypotheses.
Therefore, it is no wonder that there are two contradictory viewpoints on the possibility of a German crisis.
Is German Economy Safe?
According to Eugene Olkhovsky, ’s leading expert from Canada, most experts assume that the Germany economy is relatively safe at this point. They name a number of reasons:
1. The German economic recession has already reached the bottom and the economy is about to start recovering. Even some of the top German officials share this idea. Five professors, who are the German Chancellor’s economic advisors, assume that the recession is weakening and the year of 2013 will start from economic growth.
2. Germany’s GDP keeps growing (0,8–0,9%).
3. There is no budget deficit threat. Tax hikes and austerity may let the authorities cut the deficit down to 0.1% this year and reach a surplus in 2013.
4. The rate of unemployment keeps declining. This is the best factor confirming stabilization and economic growth. This year, the amount of employed Germans has reached the highest level ever seen – 41.6 million people.
5. Germans’ purchasing power keeps strengthening. There has been a major increase in consumer demand over the last few months.
Germany’s Economic Steadiness Has Several Reasons
Optimists say that the efficiency of the Germany economic model looks quite natural because it has a decent safety factor, which based on:
· Focus on powerful industrial production ( and its successful modernization)
· No deindustrialization ( like in some other developed economies)
· No transferring the production to Asia
· Export-oriented economy
· Production of called-for and high-quality products
· Access to relatively cheap recourses
· Highly-developed infrastructure and innovation technologies
· Personal plan aimed at overcoming crisis phenomena
Crisis Ahead?
There are many pessimists among experts as well. The list includes:
The Euro Commission. Their forecast for the German economy prospects in 2013 looks gloomy. The growth is expected to shrink by half in 2013.
Deutsche Bundesbank. The central bank expects stagnation as well.
Philipp Rösler, Federal Minister of Economics and Technology and Vice Chancellor of Germany, says that the eurozone crisis has undermined investors’ confidence in Germany and the eurozone on the whole.
Moreover, Germany’s public debt is over 80% of GDP. This level is far from suggesting economic stability, they say.
Forex.
At the same time, the common European currency keeps weakening against the US Dollar.
The chart below, courtesy of , reflects the current state of affairs in the market of EURUSD:
What Factors Can Undermine German Economy?
The eurozone debt crisis. Germany has been the major donor for the debt-ridden economies ever since the crisis broke out. Germany accounts for 30% of the tranches given by the ECB to Greece, Spain , Portugal , Ireland and others. Germany is constantly involved in solving the problems of other European nations.
Moreover, as you know German politicians have decided to abandon nuclear energy, thereby creating a major energy problem for the entire nation. Now Germany will have to spend over €260bn to create an entire infrastructure for producing alternative energy. For German consumers, this means higher energy prices.
Germany stays dependent on the export of natural gas from Russia and crude oil from the Middle East. Still, Germany’s external trade is mainly oriented towards Europe. Therefore, any further economic shocks in Europe will inevitably undermine the Germany economy.
