Saturday, April 09, 2011

Economic Growth in Germany Continues

As much of Europe, particularly Spain and Portugal, continues to struggle economically, Germany continues to prosper. Data from January through March 2011 shows that the German economy has continued to grow. Export figures published this week revealed that February's figures were even stronger than those in January, with a 2.7% growth between the two months. Data also shows that both German manufacturing output and construction activity rose since January. Further, over the past year, German exports have increased by 21%. Economists predict that German economic growth will continue and have suggested that the German economy, the largest in Europe, could grow by up to 3% overall this year.

The contrast between the strong and continued economic growth that the Germans have enjoyed and the increasing austerity measures that have been taken by several European countries, as well as the bail-out packages received by Portugal, Ireland, and Greece, highlights the "two-speed" Eurozone. These differences have lead to increased economic tensions between the strong and weak economies within the Eurozone. For example, Germany's continued growth is one reason that the European Central Bank's (ECB) recently increased in its main interest rate to 1.25%. Spain and Ireland are expected to suffer the most due to this rise, as they are already suffering from high debt and interest rates. Homeowners will also suffer because this rise will lead to higher rates on variable-rate mortgages. Jean-Clade Trichet, ECB President, said that the ECB made this change in light of what would be the best for the Eurozone as a whole, arguing that a firm grip on inflation would benefit all countries.

The varying degrees of economic strength and soundness in different Eurozone countries have made it difficult for the ECB to create policies that work for everyone. According to one economist, the challenge is that "one size does not fit all." While higher borrowing costs may be good policy for Germany and its efforts to reduce inflation, for other countries, it may be the wrong policy at the wrong time and actually stifle growth.

No comments: