The German economy

The German economy grew by remarkable 4.0% in the year to December, levels seen only briefly at the end of 2006 and mid-2000. Contrary to the impression of an externally driven economy, the majority of this growth has come from domestic demand. The biggest driver was investment contributing 1.4%, but private consumption grew by 0.8% and public consumption by 0.6%. Net trade contributed 0.6% as did inventory build. Consumer confidence has improved noticeably throughout 2010 and is at its highest level since early 2007.

The other impressive feature of the economy is unemployment now down to 7.4% well below that of the USA. The number of jobs is growing at 1.5%, although the number of Germans wanting to work is growing at a more sluggish 0.3% (vacancy levels have increased dramatically over the last year).

The outlook for 2011 remains positive and there is no reason why Germany cannot grow at 3% over the year. The risks are twofold; the first is a collapse in demand for German exports from emerging economies and the second is a banking crisis brought on by a PIIGS default. Neither is very likely this year.