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German Growth & The ECB

James Boston
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German Q4 GDP data this morning came in as anticipated at 0.4% growth year on year, this takes the annualised growth rate in the Eurozone’s largest economy to 1.3% (YoY). This is not a staggering growth rate by any stretch of the imagination but given the state of the global economy over the past five years it is one that is being welcomed by the market for two simple reasons. It’s consistently stable and it’s heading in the right direction.

The comparative success of the German economy is being attributed to one key factor, exports. Foreign trade sales rose in Q4 by the highest amount in over 3 years, posting a 2.6% gain in the final 3 months 2013.

These figures bode particularly well for the Eurozone as a whole, not solely because Germany is deemed to be a reliable barometer of European economic health, but because Germany’s main trading partner is the rest of the Eurozone. Therefore, if Germany is selling the implication is that the other Eurozone economies are buying, and an increase in consumption in the remaining member states is a clear indication that consumer confidence is on the increase which in turn will drive much needed economic activity in all sectors.

It is no surprise that German business confidence is at a 30 month high, this coupled with today’s export figures and record low unemployment clearly point to solid recovery in this key Euro economy. What then for the rest of the Eurozone where signs of recovery are present but there is still a lot of fragility and low confidence in the member countries, particular those on the peripheries. The European Central Bank has the unenviable task of charting a monetary lead recovery course for all member states, regardless of their relative positions in the recovery cycle, and with only one policy instrument to be applied to the whole Eurozone their task becomes all the more difficult, this certainly explains Mario Draghi’s cautious and confusing rhetoric of late.

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