Friday, August 13, 2010

German GDP growth surprises

Today's second quarter GDP growth report for the European Union is a mixed bag overall, but contains very good news for Germany which had its fastest growth since reunification.  German growth in 2010: 2 increased by 2.2 percent compared to 2010:1; most forecasts predicted a 1.3 percent increase. 

This is noteworthy for two reasons: (1) Germany is Europe's largest economy so more rapid growth there should help other EU nations and (2) many US economists have criticized the Germans for not doing enough to stimulate their economy.  To get some perspective, the German stimulus package was 50 billion euros, roughly 1.6% of GDP, whereas the US stimulus package in the same year was $787 billion, which clocks in at about 5.5% of GDP.  There are some differences in the timing of the stimulus in each country, with 71% of the German stimulus hitting in 2009 and the rest hitting in 2010.  In comparison, about 15% of the US stimulus went into effect in 2009, 30% in 2010 and the rest in 2011 through 2019. 

Bottom line: expect the German report to stimulate mucho discussion about the effectiveness of the US package.  Warning label: do not read too much into numbers from one quarter. 

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