Germany defies crisis to stage recovery

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While much of the eurozone remains gripped by crisis, Germany is powering ahead, and the gap between her and the peripheral EU economies is growing.

Unemployment in Europe's largest economy fell again last month, to a headline rate of 7.5 per cent, compared with 7.7 per cent in the UK.

Job creation continues apace – up 34,000 in October. About one-third of the improvement in German economic fortunes is down to the much-vaunted success in exporting capital goods to China; two-thirds is down to growing consumption at home, as German shoppers make a belated return to the high streets.

Such a broad-based recovery, coupled with healthy public finances, is unique among the EU's larger members. A part of that reflects the depths of the recession Germany suffered when world trade collapsed in 2009, but a widely acknowledged improvement in productivity is also paying dividends. Corporate, exporting Germany has benefited from a lucrative combination of an efficient cost base and a sharply deprecating euro.

By contrast, the jobless rate across the single currency area increased to 10.1 per cent in October, the highest since July 1998, from 10 per cent in September. Some 80,000 more Europeans are without work. Austerity programmes have not helped nations such as Portugal, Italy and Spain address the base causes of the financial crises – fundamentally uncompetitive industrial structures.

The vigour of the German revival is also adding, modestly, to inflationary pressure – up 0.2 percentage points on the yearly rate to 1.5 per cent. In the euro area as a whole, consumer prices rose 1.9 per cent last month from a year earlier, the highest since 2008. But the threat of deflation remains, as the sovereign debt crises drag on.