Election Isn’t Germany’s Only Problem – MoneyWeek

2。

UnlikehiscounterpartsintheAngloSaxoneconomies,theGermanconsumerisinclinedtosave。

Since1997,retailsalesroseby40%intheUK,20%inFrance,butanegligibleamountinGermany。

Incomeshavebeenrisingonlyslowly。

Thisisduetofearofunemploymentandthelackofprogressemanatingfromthereformmeasures。

HomeownershipisalsolesscommonthanintheUKandhousepricesforyearshavenotprovidedawealtheffectasintheAngloSaxoneconomies。

3。

Germanyhasaseriousdemographicproblem,withthelowestbirthrateinEurope。

Thepopulationcouldfallbyover10%overthenextfortyyears。

Demographicdeclineisnegativeforeconomicgrowthasinvestmentisdiscouragedandthereareworriesaboutprovidingforoldagewhichdepressesconsumption。

Fortunately,2005hasseenthegreenshootsofrecovery。

Thestockmarkethasbeenstrongandbusinesssurveyshavepickedup。

CompetitivenesshasimprovedasGermanwageshaveincreasedbyonly1。

2%andunitlabourcostshavefallenby2。

5%,helpingGermanexportstoriseby8。

8%。

Germanyremainsthelargestexporterofgoodsintheworld,soifthiscouldbecombinedwithstrongerconsumerspending,theeconomywouldtakeoff。

Ifbusinesscouldemploymoreworkers,unemploymentwoulddeclineandthiswouldboostconsumerconfidenceandleadtoconsumerspending。

CantheElectionmakeachange?

Inmanyways,theSPD’sreformprogrammecontainsmoreradicalproposalsthanmootedbytheCDU,buttheinconclusiveelectionresultintroducesadangerthatthegovernmentisunabletomakeradicalreforms。

Inparticular,Germanyneedstobelessreliantonmanufacturingandplacemoreemphasisonservices,wheretraditionallyithasbeenweak。

Thenexttwoyearsarelikelytobedifficult,withthehighoilpricethreateningtoweakenworldgrowthandhenceGermanexports,andwithgrowthinthekeyUSandUKmarketsslowing。

HopefortheEurozoneliesinthebeginningofaGermanrenaissancethatwillputpressureontherestofEuropetofollowapathofreformandeconomicrevival。

ByEdwardMenashy,economistatCharlesStanleyEquityResearch

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