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Employees of Audi work at an assembly line in Ingolstadt, southern Germany, in a file photo from February, 2012. About 3.6 million workers in Germany’s auto industry received a large pay raise in May. (Lukas Barth/Associated Press)
Employees of Audi work at an assembly line in Ingolstadt, southern Germany, in a file photo from February, 2012. About 3.6 million workers in Germany’s auto industry received a large pay raise in May. (Lukas Barth/Associated Press)

Euro zone: In search of a driver Add to ...

A leading driver of demand for euro zone imports is industry. The sector is buying capital goods to equip factories, as well as components to put in products such as cars and machines tools, which are still selling well outside the single currency area. Germany in the first quarter imported less Spanish olive oil and more Spanish car parts than in the same period in 2010 - a sign euro zone rebalancing is as dependent on the German exporter as on the German shopper.

The country’s economic health bounced back from the global crisis more quickly than others in the euro zone, which spurred private consumers even before this year’s wage deals. Unemployment fell to a two-decade low in March, with 2.8 million, or 6.7 per cent, out of work. First-quarter wages were 2.4 per cent higher than a year before. Private consumption generated half of the period’s 0.5 per cent growth.

Mr. Geistert recalls that Mercedes-Benz employees received a €4,100 bonus earlier this year from parent company Daimler, which he spent on “another moped for my collection” and a washing machine. But he says the June rise will add a more modest €50 after tax to his and his colleagues’ monthly cheques. “I think most of the pay rise will be eaten up by the cost of living or be put into savings accounts,” he says.

Traditionally hesitant German consumers appears in no mood to change their behaviour. Holger Schmieding at Berenberg, a German bank, reckons the wage rounds could lift income by as much 3 per cent over the year. “But even if it turns out to be a bit higher, private consumption will rise by only 1 per cent, contributing maybe 0.5 per cent to a forecast gain in GDP [of 1 per cent]. That’s something. But it’s not a trend that will save Europe.”

An indication of consumers’ lingering hesitancy is rising demand for housing. Property prices rose 5.5 per cent last year, a stellar rate for a long stolid market. As Mr Schmieding notes: “Germans are buying and building and doing up houses” - a form of spending that usually boosts domestic building suppliers but does not directly help their euro zone partners.

Klaus-Dieter Schwendemann is head of marketing at WeberHaus, a manufacturer of houses that cost up to €2-million and whose components are sourced domestically, thereby not contributing to Germany’s trade balance. Years of decline in homebuilding bottomed out in 2009 and picked up in 2010, he says. “Construction permits rose 20 per cent to 103,000 in 2011 - a huge leap.”

The company, based in southwest Germany, built 700 houses last year, a rise of 14 per cent, and Mr Schwendemann expects to sell at least 725 this year, 90 per cent of them in Germany. From the start of the crisis, a remarkable number of buyers paid upfront in cash. “They were transferring assets from equities and savings into bricks and mortar to a degree that we’d never seen.”

As Germany’s economy strengthened, the more traditional home buyers reinforced demand. “Before 2009 people were worried about job security and the [high] levels of contract workers. Then sentiment turned,” he says. “Today, a young engineer has a career perspective and new confidence. Many young families are now looking to build.”

That should further reduce the country’s dependence on exports and the vagaries of the world economy. Even as fears about poor global growth in the second quarter - that of China, in particular - have grown, some economists have raised their forecasts for Germany. The Bundesbank now expects the economy to grow 1 per cent, not 0.6 per cent, this year - if the global economy holds up.

But the country’s household spending ultimately seems to have little bearing on euro zone rebalancing. “I don’t think German private consumption - or even construction investment - is that decisive for the rebalancing of the euro zone,” says Andreas Rees at UniCredit. As well as welcoming capital investment by German companies, the euro zone should hope German exports will remain strong. “These contain the intermediate products which Germany is importing more of from the euro zone.”

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