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

Figure 1.5: Response of quarterly GDP growth to a one time increase in export growth
(by 1 standard deviation)
0.00%
0.05%
0.10%
0.15%
0.20%
1
2
3
4
5
6
7
Quarter
C
h
a
nge
 i
n
 qua
rt
e
rl
y
 gr
ow
ht
Germany
France
Italy
Germany’s response is clearly front-loaded. While its cumulative GDP response is the same
as that of France (0.41%), practically all of the impact is noticeable in the immediate first two
quarters, after which it quickly dissipates. The inability of Germany to attain self-sustained
growth was described further up. The figures clearly reflect the otherwise anecdotal
observation that Germany is relatively more dependent than other countries on the global
business cycle. As Figure 1.5 shows, Germany’s reaction to export changes tends to be large
and direct. A separate analysis of pre- and post- unification data supported the view that this
characteristic is not a recent phenomenon.
While the vector autoregression presented here provides some evidence on the dynamic
aspects of the trade-growth nexus, it cannot provide much guidance on the transmission
mechanism between export performance and growth. Given the very immediate impact
exports have on growth, it appears, however, that relatively slowly and indirectly working
factors are weak in Germany compared to other countries, while direct factors such as the
instantaneous transmission of economic sentiment from abroad carries relatively large weight,
as can be seen, for instance, from the close correlation of the German and American stock
market in Figure 1.3.
1.1.5 The dependence of the business cycle on trade
The previous sub-section established that one of the defining features of the German economy
is - despite its large size – its strong dependency on external developments. As shown by
Figure 1.6, the degree to which export expansion and GDP growth move in parallel is indeed
remarkable. All turning points in the growth cycle trace contemporaneous changes in the rate
of exports. A positive correlation of exports to GDP is certainly no surprise, because exports
are included in the calculation of GDP itself. However, the contribution of net exports to
growth is relatively small and less correlated with growth than exports alone. Insofar as other
EU economies, and hence German exports, are subject to similar monetary policy shocks as
Germany via EMS and EMU, it is remarkable that in Germany the correlation between

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exports and GDP growth is stronger than what can be observed, for instance, in France and
the UK. It is especially weak in the cases of Italy and Spain.