Fisher Investments Editorial Staff
Others

We’re All Jelly Donuts

By, 10/15/2010

Story Highlights

  • The German economy, Europe's largest, is serving as a petri dish of typical economic recovery, proving that the world can grow, even thrive, despite ongoing trouble spots.
  •  In the face of headwinds (whether real, overstated, or never materialized), solid economic fundamentals prevailed.
  • It's easy to see how one country can soldier on and even thrive despite many legitimate headwinds, but the same holds true of expectations for the rest of the world (including the US).

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Headlines continue to be awash with talk of "new normals," jobless recoveries, and "it's different this time" sentiment, even on the heels of one of the best Septembers ever for stocks. Is that confirmation the world is headed for more trouble or just dour sentiment characteristic of every normal recovery? We wager the latter. What makes us so certain? For one, Germany!

The German economy, Europe's largest, is serving as a petri dish of typical economic recovery—proving that the world can grow, even thrive, despite ongoing trouble spots. Despite the (by now) well-known PIIGS issues just a few months ago that folks feared would finish the eurozone forever, the German economy grew by 2.2% in Q2 (just when PIIGS fears were highest!). This growth, the strongest on record since German reunification nearly two decades ago, handily beat expectations. More amazing, the forecast for German GDP was revised up to 3.5% in 2010—one of the best outlooks in the developed world—a huge 2% increase from earlier forecasts.

Let's review some of the woes facing Germany (and, indeed, the world) this year. PIIGS. Double-dip fears. Global inflation and deflation worries. Elevated unemployment. Schizophrenic fears the euro was too weak—signaling low confidence in the eurozone—then too strong, hurting German exports. These should all sound familiar because they are the same woes worrying investors globally. Even Mother Nature appeared to conspire against Europe with the eruption of Eyjafjallajökull and subsequent ash cloud. (Not to mention the indignity of an octopus accurately predicting the German loss in the World Cup—while not an economic harbinger, we'll bet this will be remembered long after PIIGS debt woes are forgotten.)

Fact is, in the face of all of these headwinds (whether real, overstated, or never materialized), solid economic fundamentals prevailed. Germany is accelerating, not getting pulled into a Greek-debt-instilled morass. German exports continue to be strong, especially to Emerging Markets in Asia and Latin America. Let's put things in perspective—Emerging Markets, thanks to their size and fast growth, are much more important to Germany than the PIIGS. And Emerging Markets look poised to continue their robust growth—a bullish sign for Germany going forward. The German recovery is also leading to increased domestic consumer spending and, yes, more jobs. Yet many believe the German economy will cool in 2011.  But growth expectations for 2011 are likely too low, which is bullish for Germany because low expectations contribute to upside surprise.

It's easy to see how one country can soldier on and even thrive despite many legitimate headwinds, but the same holds true of expectations for the rest of the world (including the US). The world is never trouble-free. Economic metrics never move in lockstep nor accelerate in steady, predictable fashion—that's true whether you're German, American, or a jam pancake.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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