The experts are rubbing their eyes, and the international press is calling it a miracle. “The 20-Year Miracle” was Business Week’s headline in its 23-page cover story on “New Germany” in autumn 2010. The renowned New York Times praises Germany’s “own vision” for tackling the crisis. And the French daily Le Monde heads a commentary with the not entirely serious question: “Will Germany save the world?”
This international esteem is based on fascinating numbers: gross domestic product will grow by just under 4% in 2010; exports are approaching the trillion-euro mark; employment is higher than at any time since reunification; and the recovery promises higher incomes, growing domestic demand and rising tax revenues. After the recovery was initially mainly sustained by exports, it now has an increasingly broader base that also includes the domestic economy. It’s an upward spiral. And the German Council of Economic Experts is expecting unemployment to fall further.
How has Germany managed this feat of overcoming the financial and economic crisis so quickly? Let’s take a look back in time. After the Lehman Brothers insolvency in September 2008, the collapse of world trade hit Germany with full force. German imports, exports and industrial output dropped by more than 20% within six months. In January 2009 Germany’s flagship automobile industry produced 34% fewer vehicles than in the same month of 2008.
All this has nothing to do with miracles. The Council of Economic Experts gives the Federal Government credit for having “successfully slowed down the downward trend”. Faced with the worst recession of the last 60 years, politicians and entrepreneurs were farsighted and pragmatic in their response. The Federal Government launched economic stimulus packages worth billions of dollars. These were good for the economy and the environment. Buildings were renovated by public investment, benefiting the construction industry – and the country’s ecobalance. The so-called scrappage bonus led to an ecological renewal of the vehicles in use and gave the industry a real boost. The “emergency parachute” for the banks prevented further turmoil in the financial sector.
The flexible working time measures introduced as part of the Agenda 2010 reforms as well as the short-time working rules prevented mass redundancies in Germany. Now, in the recovery, they are enabling businesses to meet the rapidly increasing demand that is mainly coming from the emerging markets of China, India and Brazil. It is evident that the range of products offered by German companies matches the needs of the growth engines in the world economy. As a result, Germany is benefiting from the economic dynamism of the emerging countries. German industry is very well-placed.
In the crisis the SMEs yet again emerged as the backbone of German industry, showing the necessary stability. They make up well over 90% of all companies in Germany and employ 65% of the workforce. Most of the firms are family businesses. They are characterized by continuity and long-term thinking, not short-term pursuit of profit and frequent changes of strategy. So-called “hidden champions” are sometimes to be found among them – companies which, although largely unknown, are actually world leaders in niche markets.
The really big German corporations are also coming out of the crisis with renewed vigour. The carmaker BMW made more money in the third quarter of 2010 than ever before. The technology company Siemens’ operating result hit an all-time high in 2010 – posting above-average growth in its environmental portfolio. Building companies and the skilled trades are asking their customers to put their orders off until next year. Companies in the fields of health and renewable energies, both regarded as growth industries of the future, are desperately looking for staff. The long list of job offers at juwi.de – a medium-sized engineering company in renewable energies – speaks for itself. The young company has just hired its 1,000th employee, having created 600 jobs in the past two years.
“The Germans haven’t experienced a development like this in a generation,” writes manager magazin. Ulrich Kater, chief economist at Deka-Bank, believes Germany has found “almost the ideal line”. Under the headline “Germany Is Back”, Deutsche Bank Research does dampen the optimism slightly with a “but”, however. “Signs of a slowdown among important trading partners might point to risks.” It also needs to be seen whether these high growth rates are sustainable or are primarily a reaction to the very sharp economic decline and will soon crumble away again. In unison with the leading economic research institutes, Ulrich Kater warns: “We’ll have to wait and see what impact the unsatisfactory development in the USA has on Germany. Exchange-rate turbulence could also cause us problems. The commodity markets are my biggest worry at the moment.” But he adds: “The upward and downward risks are evenly balanced.”////
