German GDP contracted by an unexpectedly large 0.5% in Q4 2012, according to preliminary estimates of the German government. The contraction is largely due to receding export and capital investment volume and does not necessarily mean Germany is in recession unless Q1 is weak as well. I do have a few comments about the numbers, however. My comments have mostly to do with the German economic model, which I have commented on a few times in the past.
The way I positioned it in 2011 was by asking “What is the secret to Germany’s economic success?” The gist of that post was that the fundamentals for the German economy were favourable. However, because the German economic model is highly geared toward external trade, the country was vulnerable to weak demand growth or recession elsewhere in Europe. And this is what we are seeing from the numbers late in 2012. Even so, Germany has diversified its trade away from Europe, so that problems in the periphery have a more muted impact on Germany’s economic performance than they would have ten years ago. [Content protected for Gold members only]