A U.S.-Germany-China Economic Recovery?

Germany cannot defy the gravity that has pulled much of the EU region close to recession, and some parts of it to negative GDP growth. Demand in the U.S. and China for high-end manufactured goods, pharmaceuticals and software may be relatively good. But Germany’s GDP is $3 trillion. That is not far behind Japan, and nearly 50% more than Brazil, France and the UK, taken individually. An economy of Germany’s size can hardly thrive without some robust demand from nations within its region, coupled with a U.S. economy that is in a recovery, albeit a weak one.

The U.S. faces a problem similar to Germany’s. The EU, which in total has a GDP of $15 trillion, has to continue to have reasonable consumer demand, as well as corporate demand for U.S.-originated goods and services. Germany will help drive some portion of this. But most other European economies will not. Neither will Japan. That leaves China, which may not do as well as it has economically. The People’s Republic will post a drop-off in consumer activity expansion as a slowdown in its factory production undermines growth in its new middle class.

China’s massive manufacturing sector should be able to rely on the U.S. and German markets, along with Brazil, India, South Korea, Mexico, and Canada. That will not to make up for slack demand from large economies, which include the UK, France, Japan, Italy and Spain. It is simply too much to ask of emerging market nations and the balance of North America outside the U.S.

Based on comments from economists and the press, the U.S., Germany and China should have relatively good years as measured by GDP. If so, the improvement will have to draw largely from trade activity among them. That by itself cannot drive a good year among the three. They are not decoupled enough from the balance of the world’s economy.

Douglas A. McIntyre