Newspaper article International Herald Tribune

Germans Appear Ready to Loosen Purse Strings

Newspaper article International Herald Tribune

Germans Appear Ready to Loosen Purse Strings

Article excerpt

A new survey raised the prospect that domestic demand could take the place of flagging exports and help pull the rest of Europe out of recession.

Germany's famously thrifty consumers may finally be more willing to spend, according to data released Monday, raising the prospect that domestic demand could take the place of flagging exports and help pull the rest of Europe out of recession.

The Ifo business climate index, which is considered a reliable predictor of the direction of the largest economy in Europe, rose slightly more than expected in March, to its highest level since July, the Ifo Institute in Munich said.

Unusually, retailers accounted for the rise in the Ifo index; manufacturers and builders became a bit more pessimistic.

While it is probably early to declare a turning point, there are signs that falling unemployment and rising real estate prices are giving Germans confidence to do more shopping.

"Domestic components are holding up better now," said Thomas Harjes, an economist at Barclays in Frankfurt. "We are at the beginning of seeing some rebalancing of the German economy."

Germany's economy has traditionally been driven by exports of cars and machinery, while domestic demand has been comparatively weak. In fact, the country has been something of a graveyard for retailers. Wal-Mart gave up trying to crack the German market in 2006. Karstadt, the nation's largest chain of department stores, filed for insolvency in 2010, although it has since restructured and become profitable.

Germany has the largest trade surplus in Europe, which partly reflects the success of manufacturers like Daimler and Siemens, but also is a function of weak demand for imported goods. The rest of the euro zone, much of which is stuck in recession, would benefit if Germans bought more products and services from their neighbors. …

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