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Germany

A German Spring: Optimism Spreads Across Europe's Biggest Economy

Germany's economy has not quite come "roaring" back. Slowly but surely, however, Europe’s biggest economy is growing, adding jobs and prompting observers to expect even better days ahead.

Ruhr, Germany (Marc Veraart)
Ruhr, Germany (Marc Veraart)
Carsten Dierig and Tobias Kaiser

HANNOVER – While other parts of Europe grapple with high unemployment, spiraling debt and simmering popular frustration, Germany's economic locomotive has managed to chug along thanks in large part to good old fashioned industry. And voices of optimism are spreading.

"Things are going to pick up, we're betting on recovery in the second half," said Hans-Peter Keitel, president of the federation of German Industries (BDI), speaking this week at the world's biggest technology trade show, the Hannover Messe.

Why the optimism? The domestic market remains strong, construction is increasing and overall investments by companies are on the rise. The jobs market, which hasn't been in such good shape for 20 years, also contributed to the rosy prognosis. "Industry is presently creating 500 new jobs a day," said Keitel.

The Cologne-based German Institute for the German Economy (IW) is similarly optimistic, predicting overall economic growth of 1.25% this year in Germany, with 2% for 2013. Leading economic research institutes, in a joint prognosis earlier this year for the federal government, had slightly more modest expectations. They predicted just .9% growth this year.

"The concerns we had in the fall of 2011 didn't manifest," said IW director Michael Hüther. That autumn the economy took what Hüther now describes as a "breather," contracting slightly. But it was hardly an economic collapse. "For most companies exports have remained a sure thing," the IW director said.

High hopes for trade with China

German companies continue to count mainly on robust activity with developing markets, particularly China, which this year was a partner country of the Hannover Messe. It should be noted however that growth in China has slowed a bit of late.

BDI boss Keitel does not believe the slowdown will impact German sales negatively, however, and indeed both German Chancellor Angela Merkel and Chinese Prime Minister Wen Jiabao are gunning for stronger cooperation between the two countries. By 2015 the trade volume of both countries is expected to double to $280 billion.

Wen has promised more robust and effective protection of the intellectual property rights of foreign companies. Germany's machine sector complained recently of violations of property rights. The sector loses 8 billion euros in turnover from product piracy, mostly made-in-China copies, says a recent study produced by the German Engineering Federation (VDMA). Independent of that, the mood in the sector is strong right now after a slight downturn during the past few months.

"In the present friendly climate we should be showing growth again by the middle of the year at the latest," said VDMA head Hannes Hesse. He describes the situation of the past few months as "a moderate cyclic slowdown that did not persist."

Economy is slow, but on "solid ground"

The picture is similar for the German steel industry. According to Hans Jürgen Kerkhoff, the president of the German Steel Federation, demand has stabilized again after a decline in the last quarter of 2011. January to March 2012 saw a rise of 7% compared to the previous quarter. For the year, crude steel production is expected to hover around last year's level of 44 million tons.

The electronics industry is also expecting significant growth. A poll conducted by the sector's ZVEI association says that 93% of companies in the sector believe sales will increase in 2012. Total turnover is expected to rise by about 5% to 185 billion euros, which would top the best years so far -- 2007 and 2008 – when turnover was about 182 billion euros.

"Present economic data, developments in the business environment, assessment of the current situation and expected export figures make us very optimistic," said ZVEI president Friedhelm Loh.

The German National Bank is somewhat less optimistic than industrial associations and companies about the present situation – at least for the time being. "While it's on solid ground, the economy lacks momentum right now," says the Bank's most recent monthly report.

German industry has yet to match the high level it reached in the summer of 2011. "Nevertheless, companies overwhelmingly see their situation as good or at least satisfactory, and to a considerable degree are hiring additional staff," says the report.

Read the original article in German

Photo - Marc Veraart

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