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The weakness of a Global Germany

Globalization has suddenly become a handicap for Germany. The country, the world’s largest exporter, sailed through the last few years churning out excellent growth numbers compared to most of its European partners. The reason being that Germany produced and exported investment goods in high demand among emerging countries. Between 2005 and 2007 the exports-to-GDP ratio climbed from 41 to 48 percent.

As growth is faltering worldwide, the German economy will probably suffer more than its peers. Not only because its economy is almost completely export-oriented, but also because private consumption is extremely weak and the country won’t be able to compensate a weakening international demand with a strong and stable domestic demand. Quarter-two GDP figures were negative and quarter-three GDP data aren’t expected any better. Up to a few weeks ago, the expectation was that growth in the emerging economies would compensate for the slowdown in the industrial countries. This assumption is looking bleaker by the day. Some economists don’t rule out that German exports might fall in 2009 versus 2008 as the BRIC countries reduce their imports of durable goods and review downwards their investments in infrastructure. In 1993 and in 2002, when Germany was hit by a recession, German investments in durable goods fell respectively by an annual 17.3 and 11.3 percent. The same might happen next year. Some recently-published figures by the German newspaper Handelsblatt show how much German companies are exposed to international markets. In 2007, engineering group Linde exported 89.8 percent of sales. In the same year, construction company Hochtief invested abroad 97 percent of its total investments. In the meantime, Tui, active in shipping and tourism, had 83.8 percent of its workforce outside of Germany. The future of the German economy depends chiefly on how the world economy fares next year. The latest gloomy forecasts by the International Monetary Fund don’t bode well. On the other hand, because of its economic specialization Germany will probably react quickly to a worldwide pick-up and its economy will likely recover faster than that of other countries.