German economy

German Economy



AFTER a promising May and June, Steffen Knoop has seen his sales dip by 30%. His small Hamburg-based company, Wascut, sells cooling and cleaning oils for big machines, includingthose that make cars. “I have a pretty good window on the economy,” he says. Mr Knoop wonders whether the dip is caused by people taking extra long summer holidays or something more serious. Otherswith a broader and more long-term view of the economic landscape are asking the same question.

Hopes are pinned on Germany as the locomotive that will keep chugging even as large parts of the eurozone go into recession (see chart). As long as Europe’s biggest economy keeps growing, the argument goes, it can gradually pull others out of the mire. Figures released on August 14th duly showed thatGerman GDP grew in the second quarter on the previous one, but only by 0.3%. That was better than in France (no growth at all), Spain (minus 0.4%) and Italy (minus 0.7%). Given its current weakness,can Germany continue to pull its neighbours along?

Until the end of last year, German growth seemed to be gathering speed. Then some warning signs started to appear. The business-climate index ofIfo (Institute for Economic Research), which started falling in August 2011, has edged more or less persistently down. In July business expectations hit a low not seen since mid-2009. The Markit/BMEpurchasing managers’ index, which measures the state of manufacturing, also started to fall last year; in July it too hit its lowest level since June 2009. This fall was reflected in a drop of 1.7% innew contracts won by German companies in June, compared with May—including a drop of 2.1% in domestic orders and of 4.9% in orders from the euro zone. “And we don’t see the orders that were cancelled,”points out Thomas Hüne, an economist at the Federation of German Industries.

At least German exports continue to be buoyant. Most companies with an export bias are reporting good half-year...