Germany's economy, although still restrained by weakness in consumer spending and construction, is nevertheless gaining momentum, as is the entire euro zone. So much so that the Organization for Economic Cooperation & Development has revised its 2000 forecast for euro-zone growth from 2.8% to 3.5%, the fastest pace in a decade.
In Germany, exports and business investment are powering growth right now. But following the pattern already evident in France, German consumers--and domestic demand generally--will contribute more as the labor markets improve. April factory orders rose for the third month in a row, with a big gain in domestic bookings.
Real gross domestic product in the first quarter rose 0.7% from the fourth quarter and 2.3% from a year ago. That's the same yearly pace as in the fourth quarter, but up from the 0.7% crawl this time last year. Exports soared 13% from a year ago, fueled by better world growth and a competitive euro.
More important, capital spending is speeding up, helped by the recent pickups in profits, orders, and business confidence, which was at a nine-year high in April. A key machinery-industry group recently revised up sharply its 2000 production outlook.
Clearly, the biggest drag on Germany's economy will continue to be construction, an artifact of post-unification overbuilding. Weak demand in eastern Germany, along with higher interest rates and real estate prices, will extend the malaise into 2001, says a Berlin research institute.
For now, though, the key difference between France's 3.3% growth rate and Germany's 2.3% pace is the consumer sector. Private consumption actually fell from the fourth quarter and was up only 0.9% from a year ago. However, the supports under consumer spending, while far from robust, did not suggest such a weak performance. Many economists expect a bounce in second-quarter spending. And as German growth broadens, look for Germany's growth rate to catch up with France's by yearend.