Maybe Angela Merkel was right all along…
The German Chancellor has been taking a lot of flak from her Euro-zone colleagues this year about her refusal to put German taxpayers’ money up as a bail-out for the Mediterranean Club. Irrational, irresponsible and backward were some of the milder things that have been said about her defiant attitude.
But recent figures suggest that Berlin’s economic situation is a bit less solid than some of us would have supposed. Now it’s even being rumoured that the Triple A credit rating may be for the chop – a particularly offensive defacing insult in the wake of France’s own downgrade.
But there may indeed be some fire behind all the smoke. The widely-esteemed ZEW index of business confidence has just been revised to show the third successive fall in this hugely influential indicator – with the key index dropping by 2.7 points in July to minus 19.6 points.That’s as bad as it sounds, by the way, because the long-term historical average has been around 24 points into positive territory. And it’s a six-month low. What’s to feel good about in all that?
Well, for one thing the index shows a sharp divergence between Germany’s prospects and those of its neighbours. While the respondents were clear that the eurozone’s declined by 2.2 points to -22.3 points in July – a 2.2-point decline that won’t come as a surprise to anybody – Germany’s own economic situation got a 21.1 point positive score in July. And that would seem a whole lot better if it hadn’t been 12.1 points lower than the June index rating. Ouch, that hurts.
Part of the problem, of course, is that Germany’s economy is massively dependent on exporting goods to its European partners, some of whom are going to have to rein in their over-spending in a big way. (Partly at Germany’s insistence, of course…..) We’d also need to consider that 30% of Berlin’s exports are headed for the United States, where the prospect of a fiscal cliff is still omnipresent.
Meanwhile, the evidence for a more broad-based slowdown is still coming in. Late June saw the news that retail sales had fallen by 0.3% between April and May – which doesn’t sound so bad until you hear that April had been 0.2% down on March, and so forth. Or that the country’s economists had been expecting a 0.2% rise instead.
You have to hand it to those economists, though, they’re a tough bunch to depress for very long. Only days earlier, the Bundesbank had raised its 2012 growth forecast from 0.6% to 1.0%, because of what it called robust domestic consumption. And the GfK market research company revealed that its studies indicated a major return to normal consumption patterns in July.
Will it happen? You’ll have to wait a while for the July retail figures to come through, because June’s aren’t here yet. (Not a mistake they’d have been likely to make in America, where early ‘rush’ forecasts are widely used and respected.) But, at a time when Frau Merkel’s political popularity is coming under the cosh, you can see why there’s so much political capital riding on a positive outcome. Suddenly, the Iron-Willed Chancellor’s reluctance to get more enthusiastic about giving money to the Mediterranean Club seems a lot easier to understand.
Tags: angela merkel | business confidence | chop | credit rating | defiant attitude | divergence | economic situation | euro zone | european partners | eurozone | exporting goods | flak | german chancellor | insistence | insult | neighbours | ouch | point decline | respondents | whole lot