World Business

German economy bounces back, post-stimulus

(Agencies)
Updated: 2010-07-21 15:18

BERLIN - Germany, Europe's economic engine, is back in gear after a painful recession, as foreign customers snap up cars and industrial machinery and the country reaps the benefits of stimulus spending that helped keep the motor running at home during the downturn.

In particular, economists point to government support for keeping workers on the job with shorter hours instead of laying them off -- a measure that kept more money in people's pockets and prevented a growth-killing spike in unemployment.

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As things pick up, those programs are scaling back, while the government expects to exceed its economic growth estimate. Meanwhile, carmakers Daimler AG and BMW AG say their prospects have brightened -- enough for BMW to pay workers a bonus to thank them for their commitment during the tough times.

Not bad for a country where the economy shrank by a painful 4.9 percent only last year -- easily the worst performance since World War II for Europe's largest economy. Germany is now a bright spot in a Europe still shaking off recession and struggling with heavy levels of government debt in some countries.

The economy minister proclaimed in parliament this month that Germany can be proud "that we are the economic locomotive for the whole European Union."

So far, the government is predicting 1.4 percent growth in 2010, but Economy Minister Rainer Bruederle says he is "sure it will be significantly more at the end of the year."

"This development will continue next year because the economic motor has sprung into life beyond exports," Bruederle told the B.Z. newspaper last weekend.

Economists see more sedate growth ahead. But for now, the signs are rosy: Germany's central bank, the Bundesbank, said in its July monthly report that "gross domestic product likely grew extremely strongly in the second quarter."

It gave no figure, but estimates for quarter-on-quarter growth range up to 1.5 percent -- a huge increase on the 0.2 percent seen in the previous two quarters. Official figures are due Aug 13.

The main driving force for Germany, a major exporter, remains the growing world economy, the Bundesbank said. Still, there's general agreement that the way to recovery was paved in part by government spending,

That included two stimulus packages worth some euro80 billion ($104 billion), featuring infrastructure spending on roads, schools and other projects that is still keeping builders busy and a now-expired car-scrapping bonus.

That fueled sales at home for much of 2009; this year, big increases in demand from export markets such as China and the US have helped Germany's automakers.

Top-end car companies Daimler AG and BMW AG both said last week they were upping their 2010 outlooks; BMW said it would pay German workers a special bonus averaging euro1,060 each this month to reward their commitment during the economic crisis.