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Currency Analyst since 2010

Germany: the secret economic boom?

Columnist at Bloomberg is wondering what the real reason behind the ECB’s leaving the benchmark rate unchanged is when there’s a risk of deflation in the euro area.  

The answer to this question may be in good performance of German economy. According to Kiel Economics Research & Forecasting, German economy may be 2.5-3.5% bigger than reported in the official statistics.

There are a number of positive developments in Germany:

-          Good survey readings (Ifo Business Climate Index near the highest level since reunification, GfK data on income expectations is at an all-time high, etc)

-          Germany is adding new jobs

-          Bundesbank data shows that workers have already locked in hourly pay increases of more than 2% this year

-          German inflation will also accelerate as consumers get more money in their pockets and feel more comfortable spending it

In addition, German GDP is revised with a big time lag (estimate for 2013 won’t be revised until August 2015). This would explain how the Statistics Office might miss an economic boom driven by domestic consumption, concludes Bloomberg.

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