German chancellor Angela Merkel has taken nearly five months to assemble a new ruling coalition since last September’s election setback. That hasn’t impeded the country’s strong economic recovery from the global financial crisis of 10 years ago.
Germany’s growth is powering ahead. In 2017 the economy expanded by 2.2%, the best rate for six years. Unemployment is at record low levels and a government budget surplus in 2016 of €23.7bn – 1.2% of GDP – was the biggest since German unification at the end of the 1980s.
This week’s factory orders data for December easily surpassed forecasts, despite the euro’s recent recovery against the dollar and other currencies. They rose by 3.8%, way above the expected 0.7%, while engineering orders surged by 7% from a year earlier.
Industrial output eased by -0.6% in December, but the dip was expected after a solid 3.1% increase the previous month.
Benefits of QE
Nearly three years after the European Central Bank launched quantitative easing – and two years since it cut its benchmark interest rate to zero – even the eurozone’s weakest economies have moved out of recession.
However, unlike the region’s so-called PIIGS – Portugal, Italy, Ireland, Greece and Spain – Germany’s economy didn’t really need the emergency stimulus that has rescued its weaker neighbours.
There was a short-lived slump in 2008-09 and some weak quarters as recently as 2014, but Europe’s largest economy was helped by a sickly euro that helped Germany’s major manufacturers and exporters stay relatively buoyant.
With the economy into its ninth consecutive year of expansion, Germany’s government has already raised its growth forecast for 2018 from 1.9% to 2.4%. Recent surveys of business confidence and consumer morale show that optimism is high across the board.
With the economy firing on all cylinders, the powerful IG Metall labour union has felt able to flex its muscles once again. Industrial workers and employers have been in talks over recent weeks on demands for improved pay and working hours that last month triggered a series of 24-hour strikes at companies from BMW and Bosch to Daimler.
More industrial action was on the cards before this week. However, a wage deal finally hammered out on Tuesday will see 3.9 million metal and engineering workers get a 4.3% pay rise from April and other payments spread over the next 27 months.
As IG Metall negotiator Roman Zitzelsberger noted: “Workers will have more money in their pockets in real terms; they will get a fair share of company profits and that will boost consumption.”