WASHINGTON -- Germany's economy, the main engine of growth in Europe, is showing signs of life again after the longest recession since the end of World War II.
This is good news for the United States, which stands to expand exports of goods and services to a gradually strengthening European market. After Canada, European nations are the second-largest U.S. trading partner. And unlike Japan, Europe imports more from the United States than it exports.
Clinton Administration officials are eager to revive growth in both Europe and Japan to spur demand for U.S. exports and compensate for any softening of growth here at home. Revving up the world economy was a top priority for President Clinton and other industrial leaders during the economic summit in Naples.
With the world's third largest economy after the United States and Japan, Germany has paid a high economic price since the rundown East Germany reunited with West Germany on Oct. 3, 1990. Last year, the economy shrank 1.2% as private consumption stayed flat. Capital had to be diverted to rebuild industries in the East, compensation to unemployed workers soared, and exports fell.
At the same time, rising inflation and rapid growth in the money supply handcuffed Germany's central bank. Last year, inflation in Germany hit 4.6% -- not a shocker by U.S. standards but worrisome for Germans used to stable prices. The upshot has been a slow and cautious easing of interest rates by the German Bundesbank.
But Germany's strategy of a stingy monetary policy and strong capital investment is starting to pay off. The economy has also been helped by an upturn in housing construction and, lately, orders for manufactured goods.
Analysts at CS First Boston now estimate that real gross domestic product in Germany will grow well above 2% in 1994, up from an estimate of only 1% earlier this year. And inflation is looking tamer. CS First Boston analysts estimate that prices will rise less than 3% this year and only 2.3% next year, which would be less than what most economists expect to see in the United States.
Recently, German officials reported that unemployment in June dropped to 9.3% from 9.5%, still high, but a visible sign of improvement that drew widespread public notice.
The improving economic picture has come just in time for Chancellor Helmut Kohl. whose coalition government led by the Christian Democratic Union is facing a general election on Oct. 16.
Up until a few weeks ago, the bleak economic landscape in Germany had pundits predicting that Kohl was on the way out. His main rival, Rudolf Scharping of the Social Democratic Party, was leading in the public opinion polls.
But Kohl is now back on top, according to the latest polls. Kohl and the Christian Democrats won the backing of 41% of those surveyed. while support for SCharping slipped to 35%. The Liberals, who are now allied with Kohl in the coalition government, got another 6%, while the environmental Greens picked up 9%.
If the economy continues to show signs of reviving into the fall, Kohl's chances for re-election can only improve.