Germany: the powerhouse falters

Growth stalls.  Now Northern Europe, so dependent on trade with Germany, might follow suit.

It was shattering news about Germany.  Economic growth is calculated to have almost hit a wall in Q2 this year.  

But last May, The Telegraph noted, "Axel Weber, ultra-hawkish head of the Bundesbank, told Boersen-Zeitung ... "The purchase of government bonds poses significant stability risks and that's why I'm critical of this part of the ECB's council's decision, even in this extraordinary situation," he said. The rebuke is devastating. The ECB draws its authority from the legacy and aura of the Bundesbank."  Eminent German economists had allegedly also been against bailouts of the profligate peripheral European countries on the grounds that Germany just couldn't afford it.  And now we see why, as Germany's economy flirts with a double-dip.

Germany's neighbours:

• Austria, the tenth biggest economy in the European Union transports a whopping 31% of its total exports to Germany.  This is not so surprising as both countries speak the same language. 
• Poland, the EU's seventh economy, exports around 28% of its goods and services to Germany, its largest trading partner.  
• 26% of exports from the Netherlands, the EU's sixth largest, go to the Federal Republic.
• The EU's eighth economy, Belgium, is exposed almost as much, by sending around 20% of all exports to Germany.   
• Europe's second economy, France, has a broader spread of export markets, yet even so some 16% of all exports go to the Federal Republic.
• Germany is their principal trade relationship in each case.  

The list of dependent countries is extensive, so Germany's fate effects the entire Eurozone, and many countries far beyond.

Matthew Lynn writing in Market Watch commented, "the signs right now are that the motor of the European economy is starting to slow down significantly.  That was confirmed with the release of second-quarter figures that showed gross domestic product growth of a mere 0.1% at a quarterly rate in the second quarter of the year, significantly lower than the 0.5% most economists had been predicting."  Soundly, Lynn advises, "the German economy is an export economy. Not only that, it is also a world leader in capital goods. It makes many of the machine tools that power factories around the world. It is good leading indicator of both global demand and investment, particularly in the emerging markets. If it is slowing down, it is a good bet that the rest of the world economy probably is as well."

This is opinion, of course.  More cheerful news came out of Japan of late, as its trade surplus expanded in July.  Major global engines of growth are still on a roll, according to The Economist, with total GDP growth projections for 2011 being:

Brazil, the world's 7th largest economy, growing by 4.0% this year
China, the 2nd largest, by 9.0%
India, the 10th largest, by 7.8%
Indonesia, the 18th largest, by 6.1%
Mexico, the 14th largest, by 4.2%
Russia, the 11th largest, by 4.3%
South Korea, the 15th largest, by 4.2%
Turkey, the 17th largest, by 6.0%.

(Ranks as per 2010 IMF list.) 

More countries at this point are expected to enhance the size of their economies further in 2012 than those that don't. Much rides on their ability to do so.  

But Germany's wobble, should it lead to a slip back into recession, will hit the global economy hard.  We must hope that these latest figures are a mere blip.

Check out all commentaries here.