Angela Merkel, the German chancellor, with the President Nicholas Sarkozy, both standing with their arms stretched, on the bow of a ship combating ruthless storms; a perfect Titanic scenario, pictured by a leading business newspaper of Germany in September 2011, depicting the country as a savior of the wavering Euro zone.
Going back further in 2000, New York Times stated "As we prepare for the 21st Century, a united Germany is the economic engine that will drive all of the European Union and is recognised by its peers as Europes future world power."
With financiers and economists touting Germany as a knight in shining armor, the lingering Euro crisis gave Germany the spark it has always dreamt of. Germanys critical role in rescuing European economy became markedly eminent in the past few years when the largest European economy continued to thrive while the other economies kept languishing.
Germany endured majority of problems emanating from the debt crisis that began in Greece three years back and later threatened Spain and Italy. These countries posted sharp declines in output as high unemployment slammed consumer spending, while looming taxes and reduced state spending diluted consumption and business investment. Germanys unemployment, on the contrary, remained at record lows. This coupled with lower interest rates made Germany a safe haven in times of global uncertainty, making it easier for businesses and consumers to finance new spending.
However, the good times seemed ending in 2012. All the drumbeats of optimistic forecasts proved to be a damp squib when Europes flagship economy slowed down to crawl in 2012, eking out a pitiable 0.7 percent GDP growth, after kicking up a notch at four percent and three percent respectively in 2010 and 2011.
Needless to say, the three-year old crisis took its toll on the German economy, which rode a downward trajectory in 2012, tumbling from 0.5 percent in the first quarter to 0.3 percent, 0.2 percent and -0.5 percent in the subsequent quarters.
While exports proved to be Germanys well-wisher, witnessing four percent YoY growth, the blame is shouldered on private consumption which ran out of steam, falling from 1.7 percent in 2011 to 0.8 percent in 2012. Dwindling private consumption produced ripple effects in Euro bloc, worsening the exports of other European states.
All these factors tolled Germany greatly, while business confidence fell to 2.5 years low. For the first time since 2009, the capital investment couldn support GDP growth, shaving off 0.9 percentage points in 2012.
Despite so many odds, there still appears a silver lining. Robust labour market and rising wages helped Germany to boast its first budget surplus amounted to 0.1 percent of GDP in five years after a deficit of 4.1 in 2010 and 0.8 percent in 2011.
Moreover, the record low interest rates paved the way for the government to put brakes on its debt in an attempt to manage its structural deficit within 0.35 percent of GDP. This is done three years earlier than was required by Germanys own rules. Besides, over 41 million people were employed in 2012, which is the sixth annual increase in a row.
Thus, holistically looking at German backdrop, we move back to our initial Titanic scenario. Germany still, is a power-house of Europe, according to the forecasts of renowned economists. While the gloomy cloud hangs over Europe, Germany lingers in the Islands of hopes.
The slowdown is termed temporary by the analysts. Thus, the economy is expected to turn its gaze upwards in 2013 as the key export markets: the US and China have started picking up. However, the slowdown witnessed in 2012 might propel a slow footing, thus somewhat lagged recovery in 2013.