Don't write off Germany

JUST think. If the German GDP figures had been reported in the American fashion (annualising the quarter-on-quarter change), they would have been announced as a 13.9% decline. Imagine the headlines if America ever delivers that kind of number.

It doesn't seem fair. The virtuous Germans did not enjoy a housing boom. Their public finances are under reasonable control, with a budget deficit forecast at 4.4% of GDP this year. They joined the euro at too high a rate, and then painstakingly made themselves competitive, creating a powerful export machine (their current account is in surplus). And yet their GDP is set to contract this year by far more than the profligate Americans or British.

Exports are, of course, the reason why German GDP has fallen so sharply. Put crudely, the Lehman collapse caused businesses to put their capital expenditure programmes on hold, and that meant cancelling orders for the type of goods Germany produces. Conversely, this means that, if the green shoots (better purchasing managers' surveys, higher commodity prices) continue to flourish, then German activity will rebound.

Indeed, one could make a class for buying German assets whichever way the global economy goes. If it rebounds, then German manufacturers will benefit (admittedly, many of these are not on the listed market). And if we are heading for financial breakdown, then one would much rather own German government bonds than those of America or much of the rest of Europe.

Buttonwood