Tuesday, November 8, 2011


Newspapers are writing about the German recovery as if it concerns a new Wirtschaftswunder. Nonsense. Germany has gone deeper in the crisis than most other West-European countries because they have such deep supply chains, with a lot of capital goods that are very cyclic because they fluctuate around demand in other busineses. Another reason for their strong dip is their large automotive sector, with deep supply chains.

The long German chains have responded to the crisis by active and reactive de-stocking, and when the de-stocking was over, by an elastic response in re-stocking, which I have called the Lehman Wave. The Lehman Wave is causing the steep recovery that is mistakenly seen as Wirtschafstwunder.
The strong recovery of the automotive sales has helped here too, and caused another, this time upward bullwhip effect in the chains.

We can be optimistic about the German economy: when the whole Lehman Wave is behind, and the curve is down again, the Germany industry will be at a higher production level than the industry in many other countries due to the particular situation of construction in this country. In Germany, construction has been declining slowly but steadily since 1990 and therefore it completely avoided the bubble that took place in countries like Spain and Ireland and to a lesser extent in UK and the Netherlands. Construction is now more or less on the level it was in 2007 and stable. This will give a solid new base for the economy in the coming years.
Robert Peels

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