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

1.2.6 Demand components of output growth
While the previous sub-sections looked at the supply structure of the economy this sub-
section will focus on the demand components of output growth. One of the central issues in
this context is whether with re-unification the demand composition of growth has changed or,
more precisely, whether there was a break in the pattern of growth that characterised the West
German economy during the post-war period. Such a break could be expected primarily in the
growth contribution of net exports. Indeed, during most of the 1970s and 1980s, Germany had
a large current account surplus, but following re-unification this surplus turned into a deficit
as the positive external trade balance of West Germany was not sufficient to compensate for
the huge excess absorption the New Länder.
Interestingly, at 0.1 percentage points the annual average growth contribution of net exports
declined only marginally in the 1990s in comparison with the longer-term trend (Table 1.9).
In addition, while the growth contribution of net exports fell to zero in the first half of the
1990s, it bounced back to 0.3 percentage points in the second half. Figure 1.9 shows that, in
fact, after being dented by re-unification the growth contribution of net exports improved
quickly after 1992, dipping only with the onset of the Asian crisis in 1997/98. This contrasts
with developments in other countries where the contribution of net exports fluctuated strongly
and, with the exception of Japan, remained rather low, often turning negative. It should be
noted in this context that the improvement in the volume of German net exports was not due
to developments of relative export prices. In fact, during the 1990s the terms of trade even
showed a slight improvement up to the year 2000 when they deteriorated due to the surge in
oil prices (see Figure 1.9).
Table 1.9: Contributions of Net Exports and Domestic Demand to GDP growth