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

Figure 1.6: Real GDP and export growth
The primary reason for the very tight correlation of exports to GDP growth in Germany
appears to be that the impact of exports on business confidence is a more important
transmission mechanism than in other countries, as was described in the previous sub-section.
The data in the figure reflect those of West Germany until 1991 and of unified Germany
thereafter. This means that up to this point in time, which includes most of the re-unification
boom in the early 1990s, West German sales to East Germany are shown as exports. As a
consequence unification does not interrupt the trade-growth nexus and even underscores the
high dependence of the German economy on external influences.
1.1.6 Conclusions
An analysis of the short term economic situation identifies external factors as the outstanding
features in generating business upturns and downturns in Germany. At first glance this is
astonishing, given the size of the economy. It appears, however, that a significant part of the
attention to the external side in Germany is given by the fact that since 1991 average quarterly
growth in Germany amounted to a pale 0.4%. With such a low underlying growth rate,
fluctuations in the external contribution can easily turn a mildly positive growth rate into a
negative one and thus make the difference between a boom and a recession. While it appears
that Germany also had a streak of bad luck in the timing of the external shocks, clearly the
fundamental problem is that the country does not succeed in generating a sustainable
domestically-driven growth path. Consequently, it is not able to take full advantage of the
impulse of an export boom. Apparently, France succeeded much better in this respect in past
years, allowing the country to ride out negative external shocks without losing much
economic momentum.
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