Consider a country that is the world’s number one exporter. There’s no housing bubble, because most people rent their homes. Investment and savings rates are high. It should be comparatively insulated from the global economic crisis, surely?
No. Germany did everything “right” by the standards of prudence and good economic management. Even in the knowledgeable circles I run around in, most people are astounded that Germany is the world’s top exporter — not China, not the US. But in a world with hardly any demand, that’s a problem. Not enough people want Germany’s exports anymore. And since its economy is constructed on manufacturing rather than services — at least compared to most other advanced economies — Germany is actually suffering more than imprudent peers.
Thomas Fricke, chief economist of Financial Times Deutschland, makes the problem clear:
On an annualised basis, German GDP contracted by almost 9%. In the US, the estimated decline during Q4 was 4%, similarly in Spain and France. Even the Brits got away with a projected decline of 6% annualised.
Unsurprisingly, doom and gloom is widespread. Corporate confidence in Germany, measured by the Ifo Index, has fallen to its lowest point since 1990, when the country was burdened by the cost of reunification.
In most of the US coverage of the crisis, I think the global effects are being neglected. I tried to conjure up a silver lining yesterday, but the global depth of the problem makes it hard to see any kind of brightening. Fed chairman Ben Bernanke noted today that the global nature of the “slowdown” is one of the significant downside risks for any recovery in sight. His careful testimony underplays just how bad things are.