The German economy brings good tidings for Italy

di Paul Vanderbroeck*

With the snow, some other good news comes from the north. The German economy shrunk by 5 % in 2020. That’s a lot, but not as much as expected. More importantly, it’s less than during the Financial Crisis, when the German economy went down by almost 6 %. What is more, the decline was bigger in the first half than the second year. So the economy has been able to adapt to the COVID restrictions. For sure, private spending went down considerably (- 6 %). But German manufacturing plus government spending (+3.4%) has compensated for the decline in sales in retail, hotels and restaurants.

The German state ran a deficit, but that’s what the ECB and the IMF for years have been asking Merkel to do anyway.

Both imports and exports went down last year, but recently they have been picking up. German companies expect to export more in the months ahead. Interestingly, imports from Italy to Germany in November have increased by 7,2 % from November 2019 (compare imports from China: +8.2%). Unemployment has stabilized, no doubt thanks to the money the German government is pumping into the economy.

The Institute for Macroeconomics and Business Cycle Research (IMK) and Commerzbank both forecast an increase in GDP between 4 and 5 %. The IMK is optimistic, it expects an economic boom to be 5 times more likely than a recession in the next three months.

That means fewer bankruptcies, more employment and less national debt. That’s good news for Italy. A growing German economy means more imports from Italy. More Germans with a job bring more German tourists to Italy. And who is paying for the Italian Recovery Fund and guaranteeing the Eurobonds?

Indeed.

 

Paul Vanderbroeck has Dutch and Swiss nationality. He is an Executive Coach and has spent a lot of time in Italy during the past four years.

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