Many commentators have picked the East Asian economies of China, Korea and Taiwan to emerge the most vigorously from the ongoing global financial crisis. And with some justification, for China and the two Asian "tigers" share some alluring characteristics like:
- A highly competitive and innovative manufacturing industry.
- Excellent government and workforce discipline.
- Modest fiscal and monetary stimulus (or, like China, they started from a position of budget surplus).
- And an export orientation that seems likely to benefit quickly as order is restored in the global trading economy.
But there’s another country that shares those characteristics. It’s nowhere near East Asia. But investors can expect this particular economy to also bounce back from this recession with considerable vigor.
I’m talking about the center of supposedly sclerotic Old Europe itself: Germany.
Germany lacks the huge financial sector that has been the bane of the United States and British economies, but it has manufacturing industry that is the envy of the world. Its balance of payments surplus was $205.8 billion in the 12 months through April, and is expected to be 4.4% of gross domestic product (GDP) for all of 2009.
The German government resisted the urge to splurge on "stimulus" packages, and consequently is expected to run a budget deficit of only 4.4% of GDP in 2009 - a ratio that’s far smaller than those of other "advanced" economies, and one that should be easy to finance. Furthermore, the European Central Bank (ECB) has been the most conservative of all major central banks outside Brazil, and German Chancellor Angela Merkel has indicated pretty strongly that it had better stay that way, as she is worried about inflation.
German labor discipline is world-famous, partly because of its sophisticated system of "mitbestimmung" (co-determination) between industry and labor unions. Thus, Germany loses only four days to strikes per 1,000 employees in an average year, an average that’s well below the same statistic for each of its European neighbors. Skill levels are also excellent, because of the superior German education system, much of which is run in partnership with industry.
Because of its more conservative fiscal stance - with less stimulus - Germany has suffered through a much-deeper recession than many other countries, with first-quarter GDP down 6.9% from the previous year.
By comparison, economic output declined 2.5% in the United States and 4.2% in Korea, but 8.8% in Japan and 10.2% in Taiwan.
