Sound bites: Germany just avoids recession in the first quarter - GDP rises by a slender 0.1% qoq

Germany can breathe a huge sigh of relief as it has avoided recession in the first quarter by the skin of its teeth – by a bare 0.1% expansion. Germany may be emerging into the light of recovery but it can ill-afford to rest on its laurels. Germany’s fate is still inextricably tied in with the rest of the Eurozone and the outlook there still remains deeply at risk. There are potential problems looming between Germany and France now as their respective economic outlooks continue to diverge. It is a tale of two economies. Germany sowing some seeds of recovery, while the French economy is in trouble, dipping back into a second successive recession in less than two years.

Germany may be showing some bright spots but it is by no means out of the woods. German industrial order books, output and exports may be picking up momentum, but there are still dead spots in the economy. Stronger domestic demand is still being thwarted by perennially cautious consumers, while construction is still a net drain on German growth. Whatever benefits may accrue to German exporters from the US and Japan’s massive monetary mobilisation to spark global recovery, the Eurozone debt crisis remains a major millstone round Germany’s neck. German policymakers need to think outside the box.

German recovery still needs careful nurturing with sympathetic monetary and fiscal policies – not just domestically but throughout the Eurozone as well. Germany needs to give full backing to the ECB’s stimulus efforts to boost recovery and give its blessing to Eurozone governments to water down deep austerity constraints. Germany and the Eurozone need to pull together and grow their way out of trouble. Germany needs to work in unison, not in isolation.