Turbocharged German Growth

The German Car-manufacturing industry has seen a 14% increase in export orders

Q2 2010. The UK grows by 1.1%. The US by 0.6%. But Germany surges ahead with a staggering 2.2% growth! How and why has did this happen?

First, we must remember that last year, Germany was embroiled in the World economic slowdown like the majority of major economies. It's GDP shrank by 4.9% in that year, less than the UK's decline of 6.4%, but still significant enough to mean that there would be significant decreases in production, expenditure and income, which would in turn cause an increase in 'slack', or spare capacity, in the German economy.

With such slack in an economy, such startling growth figures become more feasible, simply because there is more room for businesses to employ more staff, without significant wage increases, to increase production without incurring large capital investment costs (e.g. the need to build a new factory or warehouse) or to become more entrepreneurial, as there may be less barriers to entry for newer firms whilst the established firms are weak, and have lost valuable expertise/staff and equipment etc. Still, due to the deeper recession in the UK, and hence the greater level of spare capacity in the economy, UK growth should be higher compared to Germany, shouldn't it?

Well, as aforementioned, it's not. And, for good reason. The economies are significantly different.

Rank	Country	Exports	Date of information
—	World	$12,461,000,000,000	2009 est.
—	European Union (minus internal trade)	$1,525,000,000,000	2009 est.
1	People's Republic of China	$1,204,000,000,000	2009 est.
2	Germany	$1,159,000,000,000	2009 est.
3	United States	$1,046,000,000,000	2009 est.
4	Japan	$542,300,000,000	2009 est.
5	France	$472,700,000,000	2009 est.
6	Netherlands	$417,600,000,000	2009 est.
7	Italy	$412,900,000,000	2009 est.
8	South Korea	$373,600,000,000	2009 est.
9	United Kingdom	$357,300,000,000	2009 est.
10	Canada	$323,400,000,000	2

As can be seen from the table above, Germany is the World's second largest exporter, exporting over three times more goods than the UK. Although totally reliant upon the state of foreign economies, which have generally been risky and volatile, with the exception of China, exports are a critical source of income for a recovering economy: they fill the void left by a decrease in domestic demand, i.e. demand within a single nation, and  allow wealth to be injected into an economy from abroad, which is likely to have numerouspositive effects domestically, such as the Multiplier or Accelerator effects, which will be explained in depth at a later date.

In effect, by exporting such large quantities of goods, in particular technological or engineered, high-value goods, the German economy is literally able to 'turbo-charge' it's recovery. Exports release an economy from the stranglehold of domestic constraints, and allow products to be sold to a much larger market, more households and more firms, hence generating more revenue.

So, why don't other countries simply export more goods? Aahh, well, that's a question of competitiveness and barriers to entry....

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