It’s the exports, stupid
by David Marsh
Mon 12 Jul 2010
"Simply put, export growth leads to job growth and economic growth," President Barack Obama said last week as he set up an industry panel to help him achieve his ambitious target of doubling American exports over the next five years. "This isn't just about where American jobs are today. This is where American jobs will be tomorrow."
With this sort of endorsement ringing in their ears, it's no wonder that German policy-makers are not taking too seriously the president's equal-and-opposite entreaties for the Germans to do more to stimulate domestic consumption and rein back on exports as the prime source of economic growth.
The Leitmotif in Berlin -- and not just Berlin, judging by the U.S. president's statement -- is "It's the exports, stupid."
After a series of better-than-expected indicators and solid backing for German policy from the latest International Monetary Fund report, Berlin government officials have more than a spring in their step. Finance Minister Wolfgang Schaeuble has been speaking of possible GDP growth in Germany this year of close to 2%. That is nothing spectacular compared with worldwide growth of 4.6% predicted by the IMF (including 3.3% in the US and 2.4% in Japan). But the German expansion is roughly doubly the 1% projected for the euro area as a whole. For most of the past 40 years, German growth has lagged behind that of its neighbours. Now, the performance is edging ahead. And it's all got to do with exports.
Industrial orders in Europe's largest economy were up 5.6% in April and May compared with the previous two months, much of the rise reflecting foreign demand. Engineering and chemical groups report that production is returning to, and even topping, pre-crisis levels. Overall industrial orders in May were up almost 25% compared with a year ago. Orders from outside the euro area were nearly 35% higher.
German policy-makers say that economic recovery is now returning to Germany's classic post-war norm. Exports convey an initial stimulus that is then followed up by a rebound in investment spending and consumption.
The present constellation of a weak-ish currency, higher-than-European-average GDP growth, low inflation, low interest rates and very little upward pressure on wages is a benevolent combination that Germany has rarely, if ever, seen in the post-war period. In the past, better German growth would always be accompanied by upward moves either for interest rates or for the D-Mark or for both. Thanks to the euro, that kind of adverse pressure has now disappeared. If there was ever any constituency in Germany for a return to the D-Mark, it would be snuffed out at the earliest moment by the massed forces of the German export industry.
Officials close to Schaeuble report with satisfaction that rumours of his health-related resignation that swept the German press earlier this year during the height of euro worries have now completely subsided. And there is considerable disdain for the rhetoric of President Obama and his advisers regarding Germany's export-orientated economic progress. Particular derision is reserved for the rhetoric of Nobel prize-winner Paul Krugman, who with his recent diatribes against an allegedly inflationary bias in German policies is widely regarded in Berlin as somewhat imbalanced.
"Obama is becoming increasingly transparent," says one satisfied German official. "With his arguments that we should become a bit less reliant on exports and allow the others to catch up, he's just trying to weaken us. Well, we're not going to take his advice."
A frequent plank in German policy-making arguments is that export growth and large current account surpluses are a product not of government policy but of private sector behavior. It's not quite as simple as that. There is considerable indirect official help for the German export effort, and this will continue.
In the longer run, this may create problems. The spectre of the European Central Bank raising interest rates to damp inflationary pressures in Germany at a time when many southern states are still mired in debt-related deflation is still exercising policy-makers.
But, as a result of Europe's debt turbulence earlier this year, that likelihood has now been deferred for several months. And, meanwhile, Germany's export-orientated industry can make hay while the sun shines.
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