This week Germany announced that its economic growth for the last quarter of last year is estimated to be negative and the growth for the full 2012 is expected to be 0.7 per cent, down from the three per cent of 2011.
This immediately brought a flurry of reactions, not least from the German Government itself which wanted to explain why this slowdown occured.
One can fully understand the scare that this data has brought in the eurozone, which has always looked to Germany as the main locomotive within the euro group. Many countries depend on a growing German economy for their own growth.
The German Government was quick to point out that it was around four years ahead of its self-imposed target in achieving a balanced budget. It had committed itself not to increase debt, a policy that has been dubbed as the ‘debt brake’. Their Finance Minister has said that the Government is aiming for 2013 to have a budget that would not increase structural debt at the federal level.
For 2012, Germany had a budget surplus of 0.1 per cent of the gross domestic product thanks to a lower budget deficit at the federal level and a surplus at the local government level.
On the other hand, other data shows that there was a drop in investment by companies and this probably contributed to the shrinkage of the economy registered in the last three months of 2012.
Analysts have said that this drop in investment is likely to have occurred as a result of the uncertainty in the eurozone crisis, mainly the Spanish and the Greek debt crisis.
This uncertainty seems to have melted away and German economists are claiming that there should be no reason for which one should be pessimistic about the future of the German economy. Even so, the German Government is expecting a growth of just 0.5 per cent in 2013.
Moreover, its trade surplus has increased in 2012 in spite of a global slowdown. The indications are that although Germany has not entered a recession, it has entered a period of slower economic growth.
There are those who believe that Germany does afford and should move into an expansionary fiscal policy. It would enable the economy to increase its growth rate and would help other countries who do not have the resources to boost their economy; mainly Spain, Italy, Greece, Portugal and Ireland.
Another source of growth could be structural reforms that Germany needs in the retail sector and the services sector.
The private sector can also play its part by allowing wages to rise above productivity growth and thereby boost consumption.
Malta is also keen to see growth in the German economy because this market is significant for both the manufacturing and the tourism sectors. It is therefore heartening to note that the negative growth of the last quarter of 2013 could be just a blip.
However, there is also another point that arises from all this – the German Government, true to its character, is very definitely thrifty and prudent. It is not ashamed to say that it is and knows that it has the voters’ support for being so.
Angela Merkel’s popularity is at a record high. It is definitely not as populist as the Italian right and radical left parties are. Its prudence and thrift appear to indicate good, steady, safe governance linked with hope for the future.
Outgoing Italian Prime Minister Mario Monti, who has also decided to contest the Italian elections is promising the same thing. Is not this just what Malta needs?!