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

Table 3A.1: German Fiscal Shock and Wage Shock: (Cumulative Percentage changes)
1991
1993
1995
1997
1999
2001
2003
2005
GDP
0.21
-0.96
-3.96
-5.71
-6.38
-6.62
-6.95
-7.79
Employment
-0.56
-4.90
-7.13
-7.80
-8.46
-8.93
-8.96
-8.99
Real wage costs
2.38
7.15
3.58
1.93
1.93
1.96
1.23
0.51
CPI
-0.43
1.94
3.83
4.72
5.53
6.75
7.17
6.30
Real exchange rate
-3.23
-6.28
-9.60
-9.77
-9.44
-9.50
-9.64
-8.56
Wage share
0.77
1.38
0.08
-0.16
-0.16
-0.27
-0.46
-0.39
Trade balance
-0.35
-1.53
-1.57
-1.12
-0.59
-0.39
-0.32
0.64
Source : Simulation with QUEST ; note that the results ignore the partial reversal that occurred since 1997
.
As can be seen from the table, demand and cost shocks of the magnitude observed in Germany
can explain an appreciation of about 10%. This, together with the underlying source of the real
appreciation has persistent macroeconomic effects. Without reversal of the initial wage impulse
in later years the economy is moving to a new equilibrium with a permanently lower level of
employment and GDP. Though most of the output losses have occurred in the mid-1990s, the
simulations indicate that the process of slow growth is likely to continue beyond the year 2000.
42
This is calculated by comparing the 1992 level of wages and labour productivity to the respective pre-
unification levels in 1990. Data source is OECD’s Business Sector Data Bank (BSDP).

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