HSBC research points to improved growth performance in France while German consumer spending remains stagnant
The German economy remains in the doldrums while growth in France is starting to recover, according to research by HSBC.
Germany's quartile two GDP rating gave no hint of domestic recovery. Domestic demand fell by 0.1% with consumer spending rising by only 0.1% and fixed investment dropping by 1%.
Although there is strong export growth in the country, there are no signs it is feeding through into stronger growth in consumer spending and fixed investments, nor any sign of an impact from lower interest rates. The construction recession continues in Germany.
Gwyn Hacche, economist at HSBC, warned: "There must be concern that later this year global growth will slow, which with no domestic momentum could mean a return to stagnant GDP. The expectations elements of the Ifo surveys have, for some time, been pointing to an industrial slowdown this autumn."
The German experience was in marked contrast to the French GDP figures that showed domestic demand in quartile two rising by 1.6%, with both consumer spending and fixed investment rising strongly. The main source of the growth difference has been fixed investment, although there have also been big differences for consumer spending and government consumption. However, exports for Germany have been growing more rapidly than for France, despite Germany's perceived problems with competitiveness.
According to Hacche, this could be because the weakness of domestic demand may have encouraged German companies to focus on export markets. Comparing French and German exports by destination, the major area of German outperformance was in exports to the EU. The next most important area of outperformance was to the US. Germany also benefited from faster export growth to China and central European economies.
French consumer spending growth has averaged 2.6% a year since the end of 1996 compared with 1.1% for Germany. The difference has been particularly marked since the end of 2000, during which period German spending has been broadly flat while French consumer spending has continued growing.
For example, the French saving ratio has fallen from 17% in quartile four in 2000 to around 14.5% in quartile two in 2004, which would boost spending by around 0.7% a year.
The fall in the French saving ratio probably reflects a lower rates, delayed spending of tax cuts and possibly significant house-price inflation. The rise in the German ratio may reflect concerns about rising unemployment and the government's reform package.
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