Charting The Move In The Center Of European Economic Gravity
An interesting chart from Goldman Sachs looks at the move in the European "Economic Center of Gravity" (ECG) which currently just happens to be the German city of Oberlauterbach. As a reminder for those who may be confused by terminology, just like in physics, where the centre of gravity of a body is the mean location through which gravity acts, the ECG is the mean location of economic activity, specifically GDP, of a region. Goldman clarifies: "From 1989 to 2009 the European ECG seems to be permanently located in southern Germany. This hardly seems surprising; Germany is the ‘heavy base’ of European economic activity - being both centrally located and a major contributor to overall European GDP. Also, relative to the size of Europe the ECG has not moved much – the distance between its most westerly point (1989) and most easterly point (1999) is only 189 kilometres, a tiny fraction of the greater than 3500 km east-west distance of Europe." And as recent events have demonstrated, "Europe" is pretty much defined by Germany, at least when it comes to export prowess, and explains why today's relentless and massive drop in the EURUSD and all other pairs is cheered on wildly by the Chancellor.
Some more data on the ECG:
there are 3 striking features in the path of European ECG:
- From 1989 to 1996 the ECG moved rapidly south west, due to poor eastern European growth following the collapse of the USSR.
- In the years 1997 to 2003 we saw much more stability in the ECG, however, a small north-western pull from Ireland was noticeable - due to rapid growth amplified by Ireland’s large distance from the ECG.
- Since 2004 there has been a slow return eastward, as Eastern Europe has started outpacing Western Europe - in synch with both structural improvements in former-USSR countries and an oil-driven boom in Russia.
Just as the ECG has lay within Germany since 1989, so Germany has been the pillar of the recovery in Euro-zone GDP since Q2 of last year. Friday’s national accounts data for Q2 2010 should reflect Germany’s place at the leading-edge of the rebound in output: we forecast 1.3%qoq growth in Germany and 0.8%qoq growth for the Euro-zone as a whole.