Merkel's Mounting Imbalances

As Angela Merkel prepares for her third term - in whatever odd coalition that lurches from the election - the following four charts may surprise many that believe in the core European nations' dominance uber alles. As Bloomberg's Niraj Shah notes, Merkel may find rebalancing the German economy, as its reliance on exports increases, harder than ever. The low levels of growth, high trade balances, excepotionally low consumption and homeownership, and growing "shadow" economy all point to a European core that is far from the beacon of stability so many assume it to be.

Via Bloomberg's Niraj Shah (@economistniraj),

A Forsa poll published yesterday in Stern magazine showed Merkel’s coalition may win by a narrow margin. Her Christian Democratic-led bloc dropped a point to 39 percent, while her partners, the Free Democrats, gained 1 point to 6 percent. Forsa surveyed 2,500 voters on Sept. 3-9 and the poll has a margin of error of 2.5 percentage points.

Potential Growth

Germany’s economy, which accounts for 4.7 percent of global GDP, will grow at an annual rate of 1.1 percent until 2060, the OECD predicts. That would be the weakest pace, with Luxembourg, among 42 OECD nations. The IMF projects Germany will be the slowest-growing economy in the euro area by 2016, expanding an annual 1.3 percent that year, compared with 3.7 percent growth in Greece. The OECD says Germany has implemented fewer pro-growth reforms than any other member since 2007.


The IMF annual country report highlighted imbalances, warning Germany’s reliance on exports makes it more susceptible to external shocks. Exports accounted for 50 percent of GDP in 2011, World Bank data show. That compares with 27 percent in France and 29 percent in Germany during 2000. Adam Posen, president of the Petersen Institute for International Economics, has said the nation’s focus on exports has distracted policy makers from recapitalizing banks and deregulating the service sector.


The IMF suggests economic rebalancing will involve shifting toward consumption and investment. German living standards have stagnated over the past decade, restricting domestic demand. The median net wealth of households is less than in any euro-area nation, at 51,400 euros, according to the ECB. That is partly a result of Germany having the lowest homeownership rate in the region, at 53.4 percent compared with 75.8 percent in Greece.

Shadow Economy

Hannelore Kraft, the Social Democratic prime minister of North Rhine-Westphalia, says the federal government isn’t taking tax evasion seriously and relies too heavily on budget cuts. The shadow economy will account for 13 percent of GDP this year, according to Friedrich Schneider, professor of economics at the Johannes Kelper University of Linz in Austria. That is larger than in France or the U.K., where the gray economy will account for 9.9 percent and 9.7 percent of GDP, respectively, he says.