ANALYSIS: German economic rebound bolsters Merkel's election bid

By Andrew McCathie Sep 8, 2009, 12:37 GMT

Berlin - Germany's stronger-than-expected economic performance is helping to bolster Chancellor Angela Merkel's bid for a second term as leader of Europe's biggest economy as she enters the critical phase of the election campaign.

The stream of data released over the last week is the last before Germans go to the polls on September 27 show the nation emerging faster than expected from its biggest economic decline in a generation.

'For the near term, the outlook for the German economy looks bright,' said ING Bank economist Carsten Brzeski. 'The German economy has the potential to lead Europe out of the recession,' he said.

Indeed, the latest batch of fresh hard economic data shows German factory order books filling up, exports bounding ahead, retail sales climbing and the labour market has also so far managed to withstand the economic fallout from the recession.

Figures released earlier this month showed German unemployment coming in at a better-than-forecast 8.3 per cent in August despite initial concerns that the election might be held against the backdrop of lengthening jobless queues.

The latest round of key German economic data is also the last before national poll in less than three weeks.

The release of the latest round of key hard German economic data comes after the nation climbed out of recession during the second quarter to report a 0.3-per-cent expansion rate in the three months to the end of June.

But as a reminder of the fragile state of the recovery, data released Tuesday showed German industrial production posting a surprise fall in July.

'July's drop in German industrial output was a touch disappointing,' said Ben May economist with the economics research group Capital Economics.

'But exports have continued to improve and given Germany's strong competitive position, we still expect it to benefit more than others from the modest global recovery,' said May.

The nation's statistics office said adjusted for price and seasonally changes, output slumped 0.9 per cent month-on-month in July after rising by an upwardly revised 0.8 per cent in June.

Analysts had expected industrial production would post a rise of up to 2 per cent in July.

But as the world's leading export nation, Germany's export machine is a key pillar of the nation's economic growth rate.

German exports rose 2.3 per cent in July after surging by 6.1-per-cent month-on-month during June. July imports were unchanged from June's 5.9 per-cent increase.

As a result, the nation's trade surplus widened again to 13.9 billion euros (20 billion dollars), from 12.1 billion euros in June. Analysts had projected a more modest 1 per-cent-rise in exports during July.

The month-on-month rise in July exports is also likely to add to expectations that economic growth in the world's leading export nation will gain traction in the coming months.

Earlier this month, the German statistics office said retail sales ended two months of decline to post a 0.7-per-cent increase in July.

Despite the slide in output, the German Ministry for Economics and Technology published data Monday showing factory orders in the nation increasing for a fifth consecutive month in July.

German industrial orders jumped 3.5 per cent in July after increasing by 3.8 per cent in June. Analysts had predicted a 2-per-cent increase.