Germany’s GDP grew a surprisingly strong 0.5% in the first quarter of 2012. This managed to pull the total Eurozone region growth for Q1 up to zero percent. Yes, zero — but that is technically enough to avoid a formal recession (two consecutive quarters of negative GDP growth) for the region.
Still, while it is joyous to have any good news to report, I am not sure this is such welcome news. The strong growth in Germany will likely make German leaders even more complacent and smug about their economic model being a success, and make them feel more justified in their criticism of their struggling neighbors. The strong growth may also lead German bankers to be more concerned about rising inflation (which had been mentioned as a vehicle by which Germany could assist Eurozone adjustments).
A bigger concern is that this quarter’s growth was temporary and hence illusory. As noted in my last post, China grew reasonably strongly in the first quarter of 2011 (Jan-March) as well, but the April figures show a shockingly sharp drop in its economic indicators. Since Germany’s growth has depended significantly on strong exports of machine tools and luxury goods to China, we shall have to see if April export and production figures in Germany show a similar decline.
Good news is welcome, and if strong German growth is a year-long trend, that will offer some hope both that Germany can afford to be generous in supporting its Euro partners and that other countries in Europe can gain from German expansion. But if this was a blip, and the 2nd quarter of 2012 shows much weaker growth in Germany, then we will be back to wondering where growth will come from and if there is any way to save Europe’s faltering banks and weaker economies while preserving the Euro.