By European standards the German economy is going gangbusters. But by European standards. After all, Italy and Spain are basically enmeshed in unemployment crises. And the numbers even in Germany aren’t impressive. Second-quarter growth arrived at 0.7%, for example, after barely a flat first quarter.
So where might more German growth come from?
Exports? Nope. About 70% of German exports are sold to other nations on the continent; about 59% to other EU countries. But the euro zone as a whole is only just recently wobbling out of recession.
Business investment? Nope. As a result of the export decline, corporate investment has been weak and Germany industry is decidedly in cost-cutting mode. The most recent example is this morning’s announcement by Siemens that it will axe around 15,000 jobs. But before the Siemens news, the axes were out. Morgan Stanley economists noted in a report earlier this month that German companies announced 60,000 job cuts throughout 2012. “Furthermore, it has been scaling back investment in machinery and equipment since the start of 2012,” said researchers from the bank wrote.
Consumer spending? Nope. German consumers are famously frugal. (Even American discount superpower Wal-Mart couldn’t win them over.) “German consumers are unlikely to become big spenders even though they are hit by less austerity than their peers,” Morgan Stanley economists wrote.
Public investment? Maybe. If Germany’s growth is going to pull out of stall speed, Germany’s government is going to have to reverse a long-standing pattern of under-investment in public infrastructure. It’s been declining for the last decade—so much so that only recently did Spain’s and Italy’s declines become worse:
An increase in public investment could happen. Second-quarter GDP numbers showed government spending rising 0.6%, which helped growth stay on a solid footing.
Of course, the irony of Germany relying on government spending to juice growth while prescribing austerity to other countries might get some noses out of joint. But there’s no double standard here. There’s a very simple reason why Germany should spend on its infrastructure while telling other nations to cut back: Germany has the money.