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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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August 23, 2005


An End To Germany's Soft Patch?

Things are definitely looking up.  From Bloomberg:

Investor confidence in Germany, Europe's largest economy, climbed to a 17-month high, buoyed by rising profits, growing exports and increased spending on factory machinery and equipment.

A gauge of institutional and analyst expectations for the economy rose to 50 from 37 in July, the ZEW Center for European Economic Research said today in Mannheim. Economists expected a gain to 39, the median of 40 estimates in a Bloomberg survey showed. The index has averaged 34.3 since its inception in 1991.

Apparently, it's not just favorable exchange rate movements.

Today's report "gives hope that the economic recovery, which has been supported entirely by exports, will now also be supported by domestic demand,'' said Volker Kleff, an economist at ZEW, in an interview after the index was released.         

Germany's domestic economy expanded for the first time in nine months in the second quarter, growing 0.3 percent from the previous three months, the Federal Statistics Office said earlier today. Company spending on equipment and inventories led the gain.         

What about the euro zone more generally?

Euro-region growth will probably accelerate to about 0.4 percent in the current quarter and 0.6 percent in the fourth from 0.3 percent in the three months through June, the European Commission, which proposes legislation for the 25-member European Union, said Aug. 11. ZEW's index for the euro region increased to an 11-month high of 41.6 in August from 29 in April.

More reason to suspect the dollar's gains for the year have hit their limit?

UPDATE: New Economist notes that the IMF does not share the optimistic views expressed in the Bloomberg article.  Edward Hugh -- one of the excellent minds at A Fistful of Euros -- expresses some skepticism as well (in the comment section below).  And no sooner do I ask about the likelihood of further dollar gains than we get this news from Bloomberg:

The dollar rose the most against the yen in a month and climbed versus the euro on speculation rising oil prices will harm the economies of Japan and Europe more than the U.S.

Oh well.

August 23, 2005 in Europe | Permalink

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Listed below are links to blogs that reference An End To Germany's Soft Patch? :

» Is the IMF wrong about Germany? from New Economist
Yesterday I cited press reports that the IMF plans to slash its 2006 growth forecast for Germany (though revising up this year's from 0.8% to a still lacklustre 1.0%). This gloominess is in contrast to this week's Economist cover story, Germany's surp... [Read More]

Tracked on Aug 23, 2005 4:05:58 PM

» Is the IMF wrong about Germany? from New Economist
Yesterday I cited press reports that the IMF plans to slash its 2006 growth forecast for Germany (though revising up this year's from 0.8% to a still lacklustre 1.0%). This gloominess is in contrast to this week's Economist cover story, Germany's surp... [Read More]

Tracked on Aug 24, 2005 12:19:28 PM

» Is the IMF wrong about Germany? from New Economist
Yesterday I cited press reports that the IMF plans to slash its 2006 growth forecast for Germany (though revising up this year's from 0.8% to a still lacklustre 1.0%). This gloominess is in contrast to this week's Economist cover story, Germany's surp... [Read More]

Tracked on Aug 24, 2005 4:28:40 PM

Comments

Well I'm definitely in steady as she goes mode here Dave, and I don't see any reason to change my fundamental assessment. Business confidence is definitely up, but this does seem to be largely dependent on the export outlook with the global economy withstanding the oil shock reasonably well. Strong growth in the US will certainly be encouraging them. The recent micro level structural changes make German companies reasonably bullish when it comes to head-on-head with their US rivals.

There is of course such a think as a business cycle, so even Germany doesn't stay at the bottom of the cycle indefinitely. I know you hate these trend/cyclical issues, but the CEP for Germany does *seem* to have dropped significantly in recent years. 1% per annum is now about peak for Germany if you look at recent performance. Also the peaks are lower and the phase shorter I think.

Again, this optimism in Bloomberg doesn't reach as far as the federal statistics office, as you will find if you follow the trackback over to New Economist. Aftera strong (statistically driven?) first quarter, the German economy had zero second quarter growth.

http://www.destatis.de/presse/englisch/pm2005/p3430121.htm

It's the difference between the US and the German consumer that matters (thank you Stephen Roach) and despite what an analyst like Volker Kleff says or thinks there are strong a-priori reasons to imagine that there won't be a re-animator syndrome (apologies this time to HP Lovecraft). So as long as the a-posteriori doesn't start to challenge too strongly the a-priori, I'm staying put.

Eurozone, ditto, only there is even less reason for cheer, I don't buy Italy's miracle recovery, and I don't see the export enhancement working so well there as in Germany in the absence of the productivity driving reforms.

So, I'm sorry, I'm staying with the congenitally weak euro story.

Now let's see who's right. That's the interesting part :).

Posted by: Edward Hugh | August 24, 2005 at 04:29 AM

BTW, calling this a 'soft patch' may be something of a whopping understatement :). If I am right it is rather a 'fertility driven shock' whose impact may be felt for something like a century or so. In planetary time but a moment, I know, but for any living German...........

Posted by: Edward Hugh | August 24, 2005 at 04:39 AM

The FT buys the Bloomberg line:

but is also more cautious (it normally is. If I had to choose between the two I'd say no contest :) ).

But, I certainly prefer Holder Schmeiding's version to Volker Kleff:

" However, fears Germany’s election system might result in a fractious “grand coalition” between the CDU and Social Democrats may have damped expectations more recently and economists remain cautious about the strength of any German upswing. Holger Schmieding, economist at Bank of America, warned that expectations were fickle and that “the economic upswings heralded by major surges in the ZEW in mid-2002 and early 2004 both turned out to be disappointingly shallow and short-lived”."

Posted by: Edward Hugh | August 24, 2005 at 05:32 AM

More from the 'not so quick there' department:

"More reason to suspect the dollar's gains for the year have hit their limit?"

Well a day in the markets is a long time, but on this day the news is:

"The dollar rose the most against the yen in a month and climbed versus the euro on speculation rising oil prices will harm the economies of Japan and Europe more than the U.S."

Oh yes, and don't miss the Dooley et al thing Brad S posted about, that should be pretty dollar positive too.

Posted by: Edward Hugh | August 24, 2005 at 07:04 AM

Edward -- Brilliant, as usual. Check my updates above.

Posted by: Dave Altig | August 24, 2005 at 07:25 AM

And there's more Dave:

"Business sentiment in Germany worsened in August according to a survey published on Thursday, defying expectations of a modest rise and dealing an untimely blow to Chancellor Gerhard Schröder just weeks before he faces voters at a general election."

Today's FT:

http://news.ft.com/cms/s/d70807f2-1544-11da-8085-00000e2511c8.html

I'm not clairvoyant folks, honest I ain't :).

Posted by: edward | August 25, 2005 at 10:10 AM

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