Samstag, 28. Februar 2009

Where does it hurt the most?

In both the German and the international press, a lot has been made of the fact that globalization's poster child Germany, the country that "rose to the challenge" (quoting The Economist), seems to be hurt even worse by the current crisis than the "sinners", i.e. the US and Great Britain.

The reason is obviously to be found in Germany's high reliance on exports, and its product portfolio which is heavily oriented towards expensive capital goods.

However, is it really true that Germany is hit "worse" than the US and the UK?

It seems to me that this is far from clear. In particular because:

1. While Germany's population is declining slightly, the US is growing at a rate of 1 %. So if Germany's GDP drops by 2 %, and the US achieves a drop of only 1 %, that's essentially the same on a per capita basis. For some strange reason, this rather important aspect hardly ever gets mentioned.

2. In the case of the UK, looking at "real GDP" on a local-currency basis does not take into account the sharp depreciation of the pound: Britain is now substantially poorer than one year ago when compared internationally, and every Briton who likes to spend money on imported goods or likes to go to Spain for his vacation can feel it quite acutely.

3. The "pain" from a drop in GDP is most appropriately defined as the decline in living standards of the population, i.e. mainly the level of consumption, and possibly also personal wealth. The drop in German GDP is caused mostly by a drop in the current account surplus and in domestic investment. Consumption is (so far) not down at all, so private households in aggregate have hardly been affected. Whereas in the US and UK, households obviously have to cut back in order to deleverage (and in the UK's case, because of inflation caused by the pounds devaluation), and because their pension plans have gone up in thin air.

In short, there's a reason why the overall mood in the US and Britain is hopelessly gloomy, whereas most Germans are (so far) only mildly apprehensive.

(The worrying bit is of course that the German economy might enter a vicious negative feed-back cycle once the lay-offs start to mount. Hasn't happened yet, but it could well happen.)

Keine Kommentare:

Kommentar veröffentlichen