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

Figure 1.2 : 
Cumulative growth contribution of consumption, investment and
external balance (percentage growth of GDP since base period)
a) Germany: Period 1996/1998
b) France: Period 1996/1998
-2
-1
0
1
2
3
4
5
6
7
8
1996q01
1996q03 1997q01 1997q03 1998q01 1998q03 
Investment
Consumption
Export - Import
-2
-1
0
1
2
3
4
5
6
7
8
1995q04 1996q02 1996q04 1997q02 1997q04 1998q02 1998q04
Investment
Consumption
Export - Import

---

9
Figure 1.2 (continued)
c) Germany: Period 1999/2001
d) France: Period 1999/2001
-2
-1
0
1
2
3
4
5
6
7
8
1998q04 1999q02 1999q04 2000q02 2000q04 2001q02 
Investment
Consumption
Export - 
Import
-2
-1
0
1
2
3
4
5
6
7
8
1998q04 1999q02 1999q04 2000q02 2000q04 2001q02 
Investment
Consumption
Export - Import

---

10
1.1.3 The recovery of 1999/2001
The recovery after the 1998 downturn in Germany shows some of the features of the previous
recovery (Figure 1.2c). In particular, it is also very short-lived. The period with high growth
lasted no longer than from the first quarter of 1999 until the second quarter of 2000, and even
here a brief spell of negative growth is interspersed (in the second quarter of 1999). However,
the role of trade is not quite as prominent as in the previous upswing. The initial spark instead
is provided by the 1999 tax reduction and transfer package of the incoming government,
which led consumption to increase by 2% in one quarter. At the same time investment rose
rapidly. A backlash in these factors in the second quarter of 1999 is partly compensated by a
rising external contribution. Throughout the cycle, equipment investment plays an important
role in sustaining growth. Also, and in contrast to the previous cycle, private consumption
growth is gathering momentum in the period between 1999Q3 and 2000 Q4. It all but
appeared that Germany finally reached the stage of sustainable growth. Growth was both
higher than in the previous recovery and most importantly it was internally generated. The
higher pace of growth led to rising employment - also in contrast to the previous cycle -
which sustained higher private consumption and higher investment. In addition, the general
upswing was reinforced by a stock market boom, which combined with large scale
privatisations (e.g. of Deutsche Telekom and Deutsche Post), plenty of IPOs and the creation
of the New Market. This latter factor probably also contributed to the rapid downswing in the
third quarter of 2000, as starting in Spring 2000 stocks began to slide and the impact of rising
interest rates began to be felt (Figure 1.3).