European Economy. Economic Papers. Germany's growth performance in the 1990's

Figure 1.3: DAX and Dow Jones
The rapidity of the break in German growth is, however, mainly explained by the high loss of
purchasing power, which set in as a result of the fall in the Euro exchange rate and the rising
oil prices. How substantial this loss in real disposable income is can be seen when the GDP
growth for 2000 of 3% is compared with a terms-of-trade adjusted real value of GDP growth
of only 1.5%. Most of this terms of trade loss is concentrated in the final half of the year,
leading real disposable income growth and with it consumption to stagnate. In addition, in the
first quarter of 2001, equipment investment and construction activity shrank substantially.
Only a rise in the external contribution kept Germany from negative growth during the first
half of the year. The impact of the US slowdown provided the final straw that kept the
downswing from being only temporary. Even though the impact was not felt much on the
export side before the end of 2001, the transfer of declining confidence via the stock market
appeared to have a more immediate impact. The events in the context of the terrorist attacks
in the US have contributed to a deepening of the recession, but cannot be considered the root
of the 2001 recession.
1 0 0 0
2 0 0 0
3 0 0 0
4 0 0 0
5 0 0 0
6 0 0 0
7 0 0 0
8 0 0 0
1 9 9 1 q 1
1 9 9 3 q 1
1 9 9 5 q 1
1 9 9 7 q 1
1 9 9 9 q 1
2 0 0 1 q 1
D A X
2 0 0 0
4 0 0 0
6 0 0 0
8 0 0 0
1 0 0 0 0
1 2 0 0 0
1 4 0 0 0
D o w J o n e s
D AX
D o w J o n e s

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11
Again, the situation for France presents itself more favourably (Figure 1.2d). On the one
hand, the momentum of rising employment, rising consumption and investment persisted
already since 1996, making the situation in France less fragile. On the other hand, France
appears to have been much less hit by the impact of rising oil prices than Germany. As an
indicator, Figure 1.4 presents the difference in the harmonised index of consumer prices
(HICP) between France and Germany and compares this value to the component that can be
attributed exclusively to the development in energy prices. As the Figure shows, the two
curves practically overlap and the deviations between France and Germany are substantial. In
January 2001, German HICP inflation was around 1.2 percentage points higher exclusively
because of the higher weight of fossil fuels in the French consumption basket. This is due to
the greater reliance of France on nuclear electricity and the more privileged climate of the
country. In this situation, it appears to be a fortunate mix of a more favourable policy
environment and good luck that kept France growing at a faster pace than Germany.