Is the German Economy in Trouble?

The German Federal Statistical Office has recently released estimates stating that the nation’s economy grew by approximately 3 percent last year. While this is a very impressive figure in today’s uncertain global economy, official data shows that the growth came mostly in the first half of 2011. Alarmingly, the office estimates that the German economy actually contracted by approximately .25% in the fourth quarter of 2011. Stress from the European Sovereign Debt Crisis and a slowdown in the global economy are weighing heavily on the nation.

Uncertainty about the crisis in Europe is a major culprit in the stalled German economy. In the event of a full-on euro crisis, a recession for Germany is highly probable. Exporters in the country face reduced orders as austerity measures in Europe are restricting capital and diminishing demand. Nine out of Germany’s top ten export partners are located in Europe, with the United States being the only exception. This is a serious risk to the trade-dependent economy if commerce halts in Europe.

Some economists are predicting another contraction for the German economy, which would technically cause the country to go into recession. There is a lot of speculation that the solid growth in early 2011 was just a continued rebound from the lows of the 2008-09 global financial crisis. The German GDP decreased by 5.1% in 2009, the worst in over half a decade. The economy was able to recover and advance 3.7% in 2010, and exceed pre-crisis levels with nearly 3% growth last year, despite the contraction in quarter four of 2011.

There is some good news, however. Although 3% growth is a slowdown of progress from 2010, it is still strong compared to other countries (the United Kingdom had .9% growth and France had 1.6% growth in 2011). Exports rose by 8.2 percent in 2011 and there was a 7.2 percent increase in imports. The jobless rate fell to 6.8% in December 2011, with an average of 41.1 million people at work, a new all-time record. Germany’s fiscal position is also a lot better off than other neighboring nations in Europe, with similar nations cutting government spending and increasing taxes to bring down deficits and to reel in unsustainable debt levels.

Economists are estimating approximately 1 percent growth in the German economy in 2012. Do you think that Europe’s largest economy will have another year like 2011? Or do you expect Germany to plunge into recession?