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Germany – Home of Another Economic Miracle?

This year Germany will once again enjoy strong economic growth, and prospects for 2012 are also good. But we should not draw the conclusion from the currently positive developments that the medium- to long-term outlook has improved markedly. The economy is currently benefiting primarily from excellent cyclical conditions. Should these conditions normalise – and the European Central Bank’s first rate hike was a first step in this direction – growth rates too will return to normal levels.

Germany is once again the talk of the town. Back in 2006 and 2007, many people had already spoken of a second economic miracle, but this debate was stifled by the sudden collapse triggered by the global financial crisis. Now it has returned. Even by the most optimistic standards the German economy has recovered at a surprisingly quick pace from the deepest recession since the foundation of the federal republic and has left most other countries in the Eurozone far behind. 

The cycle continues

But we should not overlook the backdrop against which this heady upturn is unfolding. Firstly, it follows a dramatic drop in activity in late 2008/early 2009. Only this quarter will real GDP probably return to its pre-crisis levels.