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Cyclical

by Jerome a Paris Mon Jan 15th, 2007 at 11:32:27 AM EST

German unemployment (the Economist)

The official number of unemployed in Germany has been falling. It dipped below 4m in November for the first time since 2002. But that is largely due to a cyclical revival in German business. A dysfunctional labour market is still one of the country's biggest problems...

Japan’s future looks brighter than Germany’s (Wolfang Munchau, Financial Times)

The simple truth is that Germany is going through a cyclical upswing. Last year was probably the peak of the current cycle. Yet, while the GDP growth rate was good, the economy managed only a modest increase in domestic demand – GDP minus net exports – of 1.7 per cent.


The most startling statistic is how last year’s bounty was shared between shareholders and workers. Wages went up by 1.3 per cent in real terms – after a 0.7 per cent decline in 2005. But profits went up by an incredible 6.9 per cent in 2006, and this after a 6.2 per cent rise in 2005. Since 2000, we have observed a large structural shift in favour of profits. During the 1990s, there were years in which wages grew much faster than profits, and vice versa. While the distribution between profits and wages was always volatile, at least it was mean-reverting over long periods. The current shift towards profits has been both unusually large and persistent.

This is good news for investors and bad news for German workers. But is it bad news for the German economy? One argument is that Germany entered monetary union at an overvalued exchange rate and has since improved its relative competitiveness. If this view were correct, one would expect the labour/profit share to return to mean-reverting behaviour. I doubt that this is going to happen soon.

That profit 'sharing' and the weakness of consumption have nothing to do with Germany's weak growth, of course, and should not be corrected.

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The real problem is that those silly German consumers won't or can't borrow to consume.  
by Colman (colman at eurotrib.com) on Mon Jan 15th, 2007 at 11:41:57 AM EST
Why should they?

They know better than most Europeans that the central bank will do its best to make sure PIB growth never ventures above 2% and their jobs will therefore remain everless secure than the previous generation.

After all, that's the policy they've seen under governments both left and right for most of their entire lifetimes...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Jan 15th, 2007 at 12:21:53 PM EST
[ Parent ]
Can i punch someone?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Jan 15th, 2007 at 11:58:22 AM EST
Fact of the matter is it's true - it is cyclical. Two years of top-range accomodative policy in the Eurozone (not fully accomodative, but at 2 percent, close enough) and look what you get...growth!

Imagine that.

'Course, it was too good to be true and, despite a strengthening Euro, they just had to tighten. Now more in the neutral range, bias is spinning towards tight and, assuming further rate hikes, we can expect softening.

Maybe more profits going to workers would help, get consumption going, but then again, the reason for the tightening (and for the expansion of the EU, for that matter) is to ensure that this doesn't happen. wouldn't want those workers getting too confident you know, need to remain competitive with (fictional) America, eh?

It's cyclical, because ECB policy is cyclical. As soon as the party starts getting good, it's time to throw cold water on the party-goers.


The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Jan 15th, 2007 at 12:27:48 PM EST
I like how one of them mentions the split between wages and profits in Germany without mentioning similar figures for the US.

Actually, no. I don't like that. Someone should introduce Mr Munchau to the notion of intellectual honesty, I'm sure it'd be quite a novelty for him.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Jan 15th, 2007 at 03:37:48 PM EST
We have a big debate on public debt in France right now, anout how unsustainable it is, and how we are punishing it will be for our children. and then there is commentary about the US economy, its enviable "dynamism" and its amazing consuming households who have trust in the future...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jan 15th, 2007 at 05:21:56 PM EST
[ Parent ]
Some days Jerome, I wonder if we're starting from the wrong position. Maybe it really is all about competing religions and this reality based analysis isn't going to get through to people.

</gloomy>

by Metatone (metatone [a|t] gmail (dot) com) on Mon Jan 15th, 2007 at 05:30:59 PM EST
[ Parent ]
Of course it's different religions. That doesn't stop reality based analyses from being fun for the dissident minority.
by richardk (richard kulisz gmail) on Tue Jan 16th, 2007 at 07:05:10 PM EST
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France is now in the situation Sweden was in 1995. The Swedish economy nearly collapsed after that Soros speculated in the Swedish Krona. The Euro is preventing a similar scenario.

The Social-Democratic government took some tough measures and succeeded in reversing the course. Sweden is on plus now.

If France (whatever government) took the same measures than Sweden, the country would explode. Take for example kicking one third of the civil servants (with compensation, but anyway...)

by oldfrog on Mon Jan 15th, 2007 at 07:13:04 PM EST
[ Parent ]


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