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9 January 2013

The incredible disappearing Germans – a long-term economic forecast for the 21st century

If you look at the Fathoms bar to the right of this article, you’ll see a list of links. This week, two of them come via Faisal Islam and concern the strength of the German economy. One chart shows the remarkable stability of German house prices, while the other illustrates Germany’s enviable record on unemployment over the last few years.

It would seem that Germany has not only weathered the global economic crisis, but has emerged in a more powerful position than before. But are we really seeing a new era of German ascendancy, in which other countries defer to and seek to emulate the German way of doing things? 

Not according to John Vinocur, who, in an important article for the New York Times, invites us to look beyond current events:

  • “...a survey by the Organization for Economic Cooperation and Development which projects German growth falling to an average of 1.1 percent over the period from 2011 to 2060 [pdf]. That’s at the bottom of a sample pile of the world’s critical industrial and emerging economies, about half the rate of the United States’ or Britain’s expansion, behind France, Italy and even Greece, and left in the dust by India, China, Indonesia and Mexico.”

Given the seeming inability of our political culture to look ahead five years, let alone fifty, do these long-term trends actually matter?

  • “Angela Merkel, who faces re-election this fall, could well shrug and say to herself, I’ll be 106 before I’m accountable in the face of that piece of computerized clairvoyance — however estimable the source.”

And, yet, argues Vinocur, the prospect of decades of low growth cannot be ignored:

  • “Still, starting now, the O.E.C.D. considers that the German economy will trend downward over a half century at levels increasingly under 1.5 percent growth, which, while not total stagnation, means little more than marking time. That doesn’t work as a credible perspective for a country that wants to call the shots in Europe.”

But why should the outlook for Germany look so underwhelming?

  • “…the O.E.C.D. identifies the decline in Germany’s working population as a central factor in the projection of its economic shrinkage. Sure, the circumstances help provide relatively low unemployment numbers (6.9 percent). Yes, retirement at 67 has been voted into law — but it is only scheduled to come into full effect in 2030, when it might have to be upped again to age 70.”

For all the arguments that we have over austerity versus stimulus, we forget at our peril that the destiny of nations is determined as much by demographics as they are by economics. The bottom line for Germany is that, as things stand, there will be 17 million fewer Germans in fifty years time than there are now – equivalent to the entire present population of the Netherlands.

If our Dutch neighbours were scheduled to disappear from the face of the Earth by 2060, we’d expect that to have a pretty profound economic impact – and, even if we might not like them as much, the same surely applies to 17 million Germans.


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