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I now count three explanations for Germany's weak internal demand:
  • stagnant wages leading to less available income
  • stagnant real estate prices leading to less available debt
  • stagnant population growth and ageing leading to a higher propensity to save
The last explanation has been forwarded by Edward Hugh and Claus Vistesen. Of course, an ageing population that does not grow might also be expected to cause stagnant real estate prices.

As consumer confidence has been relatively high throughout 2007, the demographic thesis has lost a bit in power.

by nanne (zwaerdenmaecker@gmail.com) on Mon Dec 3rd, 2007 at 10:03:40 AM EST
A sub-point to your first item would be job exporting.

In the 90s, German businesses woke up to the fact that they had the equivalent a "little India" at their back door, i.e. countries with a motivated workforce - many of whom spoke German - willing to work for cheap (except that this workforce had a higher proportion of skilled industrial trades).

Consequently, throughout the 90s German industrial companies - both large majors and SMEs - transferred a lot of their manufacturing east.

This has contributed greatly not only to stagnant incomes but to a general atmosphere of insecurity.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Mon Dec 3rd, 2007 at 10:42:58 AM EST
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Yeah. I read a recent report, though, that many of these businesses, especially the SMEs, are now coming back to Germany -- management issues, lower productivity, hidden costs, etc. all played into the fact that the east was far less attractive than it had seemed.

Think it was in the Spiegel but I don't know for sure...

by nanne (zwaerdenmaecker@gmail.com) on Mon Dec 3rd, 2007 at 11:59:53 AM EST
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