German GDP Forecasts Were Just Hiked Again, So Should It Just Ditch The Euro Altogether?


Photo: Picasa user Keith

As confidence in European nations falls like dominoes, there’s one glaring stand-out and the contrast just gets more painful by the day.Germany’s just had its GDP forecasts hiked by the European Commission.


In its semi-annual autumn forecasts, the EU raised its growth forecast for Germany this year to 3.7%, a fraction above the German government’s own forecast of 3.4%, which the Commission had also given as its most recent estimate in an interim report in September.

For 2011, the EU raised its German growth forecast to 2.2% from 1.6% in its spring estimate. That is also higher than the government’s own current forecast of 1.8%. The EU also issued a first forecast of 2.0% growth in 2012 for the largest economy in the 27-country bloc.

The Commission’s forecasts for Germany came in the context of an overall upgrade of its growth estimate for the EU this year to 1.8%, but an unchanged estimate of 1.7% next year. In effect, this reflects a greater divergence in the fortunes of Germany and the rest of its partners next year, as the stronger national performance is offset by downgrades to the outlook for other countries.

Yes, German exports benefit from the euro, which is a weaker currency than a German currency likely would be. Germany also benefits from low trade barriers within the Eurozone.

However, given the rapidly rising bailout needs in Europe, and the fact that Germany is likely to pay for a large chunk of bailouts, one has to wonder at what stage Germany’s calculus will favour an exit from the Eurozone, since while Germany benefits from being part of the euro, it would be naive to think Germany’s entire success is a result of it.

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