The latest data on French household spending show that it rose rather faster than expected in April. This suggests that consumer spending is still supporting economic growth in sharp contrast with the pattern in Germany. In Germany the domestic economy actually *contracted* in the first quarter. True the German economy grew, but this was due exclusively to the export sector. So while the German domestic economy has been struggling France has been one of the eurozone’s best performing economies, with consumer spending and a booming housing market supporting growth. The French consumer is, it seems, considerably more robust than the German one.
So the big question is why the difference? They are both economies which according to the criteria of the Lisbon agenda are badly in need of reform. My own view, almost inevitably, is that this might well have something to do with the differing demographies of the two countries. Fertility is much higher in France – at nearly replacement rate – and over the years France has had a lot more long term immigration. Surely other factors are important: but which ones are they? Any constructive suggestions anyone?
The French love to shop. The Germans tend to be thrifty as in Lutheranism.
Honestly I wonder if the difference in culture might not account for some of it.
“Honestly I wonder if the difference in culture might not account for some of it.”
Yes, this might be one of the factors. Now are there more?
What about climate and territory? Are they really discounted in economical reckoning?
DSW
I think that demography is the point.
But why French have more children if their economical situation is not very good ?
It’s a good question.
I think, and it’s true for me, that family and children are much more important than having a high standard of living.
The east.
Agree with David.
>The French consumer is, it seems, considerably >more robust than the German one.
No, Germans are simply scared. And because of that they don’t spend if they don’t have to or if they believe they’re making a huge bargain. In January, the biggest electronics retailer “Media Markt” reduced prices by the VAT for a day and I went there just to look at lines that reminded of communism. Now it’s not hard to get that kind of discount there any day with a bit of knowledge about their competition, yet it is an impressive example what is needed to make Germans consume these days.
This country badly needs a confidence booster.
And as I’ve always been saying, in order not to endager the public mood of impending doom that is “necessary” to get some reforms done in the German institutional environment that is riddled with veto players, hardly anybody except for the loony left is saying that it’s not that bad after all (although I just saw an article in an investor’s magazine that praised Germany for its reforms and the low (sic!) overall tax quota of only 21,5%… as low as it was in the 1950s.
So, in a way, the institutional set up that is supposed to create stability is currently indirectly (via the psychologic lever) increasing (downward) economic volatility…
The first comment was only to join the contest for short comments..
From the referred article: “Household spending on manufactured goods in the eurozone’s second largest economy rose by 1.0 per cent, according to the INSEE statistical office, after a revised 0.5 fall in March. That suggests that French growth in the second quarter might not be as bad as feared. ?It is still too early to draw a solid conclusion but…..”
Like you wrote yourself it was: faster than expected
It is still to early to draw conclusions on this figures. We need more distance here. And of course the number of parameters here is simply too big. One can however conclude that a difference in ideology (for example between France and the US) does not make one of them economically completely succesful and the other completely unsuccesful.
I am not very impressed by differences in growth when both growth numbers are rather close and certainly not when you talk about very short periods of time. Some 5 years ago the Netherlands seemed to do very well on a lot of economical indexes. Now the achievements of *our* economy is compared with Portugal and Italy’s.
You wrote a good post recently on not focusing too much on GDP-figures.
In the meantime I partially agree with Tobias too where he writes “This country badly needs a confidence booster.” Partially, because in my opinion all of the continent (including the UK and Ireland?) could use one.
We are going to be extra challenged when the “NO’s” to the *constitution* will come in.
A few days ago some poll in the Netherlands predicted a 66% no-vote!
The answers from the yes-camp get more and more counter-productive.
Whatever the outcome of the referendum: again politics will get more unpopular.
Leader of the social democrats Wouter Bos already *thought aloud* that if there is going to be a NO from the referendum there should be another one next year…
Somehow we wil have to flip the NO-energy in a more constructive direction. This will be though.
Ah, the German paradox. I rather suspect those ol’animal spirits are to blame, too. It’s morally repellent, in my view, that someone is going round Germany selling “Hartz-IV cookbooks” on how to eat grass when there are people in the world who really are starving. For god’s sake! It’s not that bad.
We are going to be extra challenged when the “NO’s” to the *constitution* will come in.
What makes you think that? Confidence can be reached by showing that you still have influence and what you fear is stopped.
well, interesting run round of ideas:
“The French love to shop”.
This may well be true, but before the Germans collectively were shopping more, so why the change?
“The east”.
Obviously this is important. Unification could turn out to be an error of historic proportions.
“I rather suspect those ol’animal spirits are to blame, too. ”
Psychology will be part of the story, but maybe as a link in a bigger mechanism. The issue would be why are the ‘animal spirits’ taking a knock in Japan, Italy and Germany in broadly the same way.
“It is still to early to draw conclusions on this figures. We need more distance here.”
Obviously Frans you’re right. I am just trying to draw out some generalisable threads that we might look at over time. And provoke a bit of discussion :).
“What makes you think that? Confidence can be reached by showing that you still have influence and what you fear is stopped.”
Yes, but aren’t you really forgetting the euro here Oliver. I mean I agree, if it wasn’t for the euro we could afford to be very pragmatic, stay with Nice for another decade. what happens? Nothing.
But the euro does exist, financial market pressures are there, and this is why a ‘no’ will be highly problematic.
I happen to think the “demography ?ber alles” story about European economic growth or the lack of it, much favoured here at AFOE, may turn out to be a blessing in disguise – on the intersection between environment and economy, I think in 10 years’ time we’ll be glad if the European population isn’t growing.
Personally, as an explanation for the German paradox (a hugely successful export-industrial economy coexisting with an anaemic internal economy), I prefer the reunification-Stability Pact story.
“I prefer the reunification-Stability Pact story”.
You mean you favour letting Germany expand its deficit considerably?
“much favoured here at AFOE”
Well, in truth this is mainly me :). Obviously your point about sustainable growth is not without validity. I think it is possible to find ways to grow without so much environmental damage.
And incidentally, I am not arguing that the planet needs a larger population (we are going to get that anyway, the momentum built in means it will increase globally enormously – maybe by 50% – till the last part of this century): what I am suggesting is that we need a different distribution of population, and probably a different distribution of the structure of work. The outsourcing we have today is probably a start, but there is clearly potential for more, and more imaginative ways of doing this.
Yes, but aren’t you really forgetting the euro here Oliver. I mean I agree, if it wasn’t for the euro we could afford to be very pragmatic, stay with Nice for another decade. what happens? Nothing.
But the euro does exist, financial market pressures are there, and this is why a ‘no’ will be highly problematic.
In the medium term, yes. If we are talking consumer confidence now, no. In fact, scrapping the euro might be a boost to confidence. It’s just so risky.
You mean you favour letting Germany expand its deficit considerably?
If the German or French or Italian government really came to the conclusion, that that is what it takes, you can forget about the pact. You might argue that this is already the case.
I happen to think the “demography ?ber alles” story about European economic growth or the lack of it,
At present Germany’s working age population is still higher than France’s. The median age is higher, but older people usually make more money.
If you compare eg. Italy and Spain in terms of demographics they are quite similar yet the economies differ.
The impression I get in Germany is that people feel that they are no longer insured against sickness, disability, old age and loss of job, and all the tax-cuts in the world won’t convince Germans to spend the money today that they feel they will need tomorrow.
If France is going through the same cut-insurance reforms and they are as badly sold (two things I do not know about), *then* we might resort to stereotypes to answer the question.
BTW, does anyone have a link to the development of real wages?
“If you compare eg. Italy and Spain in terms of demographics they are quite similar yet the economies differ.”
Spain is really a special case right now, since it has this huge construction bubble. When that bursts then the picture won’t be that different from Portugal and Italy IMHO. I will be posting on this soon.
Actually Germany is rather a special problem conceptually, since the real issue is the way in which ageing is aggravated by the weight of the welfare system which is obviously enormously more generous than any of the Club Med countries. So the financing issues for these are part of the panorama in a way they aren’t down south. Also I am not forgetting the east.
But if you don’t think about the demographic dynamics then you lose any sense of history here, that I think is the main problem. I mean you are right the median age of the German population is higher AND RISING. And it’s the and rising part that is important. This opens a little perspective onto the future:
“but older people usually make more money”.
And isn’t this just the point about the resistance to the reform aganda: the ‘restructuring implied’ means that many of these older workers will be displaced only to be re-employed at a lower salary: this pattern is already clear in Japan:
Although the total number of workers in Japan has risen, the main increase in job creation has been in part-time and temporary positions, where salaries are relatively low and job security is lacking, providing a shakier basis for spending decisions.
The FT today talking about the problem of consumption driven growth in Japan: sound familiar?
And what about the compensation of older workers when they lose their jobs, any proposal to reduce that yet?
But if you don’t think about the demographic dynamics then you lose any sense of history here, that I think is the main problem. I mean you are right the median age of the German population is higher AND RISING. And it’s the and rising part that is important. This opens a little perspective onto the future:
It is an extremely important point for the future, but we are explaining the present, aren’t we?
You can look at demographics and say that most of Europa cannot grow at more than eg 3%. But that doesn’t tell you why it doesn’t grow at this limit. You are using a long term trend to explain a medium term phenomenon.
Oliver asked: What makes you think that? *)Confidence can be reached by showing that you still have influence and what you fear is stopped.
*) that we are going to be extra challenged on the need of a confidence booster for Europe when the ?NO?s? to the *constitution* will come in .
The most important part of my answer on this question I wrote before you raised it 😉 on my own blog:
“So in spite of a lot of objections (-most important: it is too long and way too much just a product of this time to pose as a constitution, particularly on economy and defense, but it is not a constitution-) I will vote yes in the referendum but if it the votes in France, the Netherlands or one of the other countries having a referendum will result in a veto for a short moment I can rejoice in the *fall* of those national politicians.
But immediately I should add that this attitude of *that will teach them* is utterly childish and irresponsible. The reason not to stay at home and vote yes is that a no will not change politics.”
This is a Dutch answer. I think (hope) that the *non* is of a different character. In the Netherlands the no is just that. Of course among the no-voters there are a lot of sober, sensible people too, but too much of the objections to me seem based on that irresponsible attitude.
To be confident about having thaught a lesson to “them politicians” that is not the kind that I want boosted in our continent.
The fears that you suppose to be stopped differ greatly and some of those fears / anger are not going to be stopped because they are hardly related to the referendum. (Turkey, the Euro, the present government)
“You can look at demographics and say that most of Europa cannot grow at more than eg 3%. But that doesn’t tell you why it doesn’t grow at this limit. You are using a long term trend to explain a medium term phenomenon.”
Well if certain key countries in the EU (I won’t say Europe, since it isn’t all the same, and possibly the cases of France, UK, and Sweden are significantly different from Italy, Germany and Spain) were able to grow – even for the next decade – at 3%, then I for one would certainly sleep a lot better at night.
Economists dream up a thing called the Constant Equilibrium Path, this is simply a convenient fiction to give some idea of potential for growth in an economy. Well there is a growing consensus that the CEP for Germany is presently in the 0-1% range, and falling, and it’s been falling for a decade.
What I imagine we could be talking about is shrinking, and by how much some of these economies might shrink.
Now on whether this is only a problem for the future, the key question is expectations, expectations govern a lot of our economic behaviour. So if everyone is agreed that long term there is a problem, this starts to change behaviour *now*. The key issue here is credit: willingness to accumulate debt, since this debt has to be paid off over a time cycle.
Again one of the pivotal points would be the housing market. And inflation expectations. If people imagine house prices will continue to rise, then they will borrow money to buy, since it can be seen as a could investment. This then becomes a self fulfiling action, as with people buying prices do go up.
But if you look at Germany your house prices have already started to fall (at least according to the Economist housing index) and so people are no longer anticipating the rise. In Japan they have been falling since 1992 now. This, from an empirical point of view is one of the key ‘symptoms’ I would say.
So in one sense the future is the present, we ourselves bring it here, and you can see this in the way people talk, the ‘so called’ fear etc.
Actually your talk of the ‘drift out of the East’, has started me thinking. There must be a really weak housing market in the East, while at the same time Bavaria may be booming, this will only accentuate the differences.
growing consensus that the CEP for Germany is presently in the 0-1% range, and falling, and it’s been falling for a decade.
That is bad, but not an explanation.
So if everyone is agreed that long term there is a problem, this starts to change behaviour *now*.
True, but a rising median age is almost a global phenomenon. So why some places and not in others?
Gloominess of character? A statistical fluctation pushing economies over an edge?
We have the UK with a higher median age than France (a little bit) and reversed economies. This is like explaining a patient’s death by bacterial infection. It is true that without the bacteria he wouldn’t have died, but neglects to mention that he wasn’t given antibiotica.
Furthermore you are looking at housing from an owner’s perspective. House ownership is not as widespread in Germany as elsewhere.
There must be a really weak housing market in the East, while at the same time Bavaria may be booming, this will only accentuate the differences.
Bavarian big cities, yes. In the east there are small towns of pensioners and public employees only. We will have to start designating lost areas.
“Furthermore you are looking at housing from an owner’s perspective. House ownership is not as widespread in Germany as elsewhere”.
You just hit on another important detail: this really could be a factor. Basically people who rent have less accumulated wealth to trade down on as they get older. This makes them extremely dependent on state welfare funding in old age, assuming also, as seems plausible, that people who rent will also have accumulated less in the way of private pensions etc.
“True, but a rising median age is almost a global phenomenon.”
Yes, but it’s not happening everywhere at the same rate, this is the point.
But Oliver, anyone, can you give me some basic information? Workers who leave companies ‘voluntarily’ in re-strucuring receive money. Many who rent may see their ‘years of service’ or seniority as another slice of accumulated wealth, something they can receive when they get pushed out at 55. Now the big question is : is anyone proposing to revise this downwards.
An important part of the ‘labour market reform’ here in Spain and Italy is essentially about this, making it cheaper to hire *and* fire workers.
“What about climate and territory? Are they really discounted in economical reckoning?”
Hey Antoni, I don’t know if you’ll be looking back at this thread, but I was just looking at the William Nordhaus homepage, and guess what I found:
“Recent economic research has explored the relationship between economic activity, economic development, and geography. At Yale, we are developing a new data set called G-ECON, which is a geophysically scaled economic data set. These data measure economic activity at geophysical scales rather than at political scales — that is using longitude and latitude rather than political boundaries.”
The link to the project description is:
http://www.econ.yale.edu/~nordhaus/homepage/public%20description%20GECON_050801.doc
Many who rent may see their ‘years of service’ or seniority as another slice of accumulated wealth, something they can receive when they get pushed out at 55. Now the big question is : is anyone proposing to revise this downwards.
Not that I’ve heared of. In fact the CDU plan is to mandate higher payments in exchange for increased flexibility in firing people.
As for the housing market, both big parties have proposed to eliminate tax breaks for construction and commuting. This will make suburbs less attractive. An increased VAT should have the same effect as rents are not taxed, but gasoline is.