For much of 2004, Germany, the euro zone's largest economy, has seen a split between solid export gains and slow domestic demand. Heading into 2005, German consumers will very likely continue to wrestle with high fuel prices and weak labor markets. Now, however, export growth is also at risk, due to a rising euro.
The latest data show that the German economy has slowed in the second half. Growth in real gross domestic product was weak in the third quarter, and the monthly numbers suggest the fourth quarter will also disappoint. The purchasing managers' index in October fell by more than expected, with lower readings on output, new orders, and export demand. The ZEW index of business expectations in November fell for the fourth month in a row, to 13.9, its lowest level in two years.
For consumers, the labor markets remain a major concern. The number of jobless rose 12,000 in September, and the unemployment rate stayed at a 5 1/2-year peak of 10.7%. High energy prices are another drag on household spending. Retail sales fell in two of the three months of the third quarter, and October sales are expected to be down as well when the official data are released in early December.
On Nov. 2, the International Monetary Fund cut its 2005 forecast for growth in Germany. The IMF now expects German real GDP to grow 1.5%, instead of the 1.8% projected earlier this year. If brought to fruition, the IMF forecast would put Germany dead last in growth among the 12 members of the euro zone.
By James C. Cooper & Kathleen Madigan