Germany's unexpectedly strong economic growth at the end of last year stemmed from high domestic demand, even though the government has done nothing to stimulate it and deflation was approaching. So what's going on? Could it be that the Germans have been right all along to focus on competitiveness, instead of boosting spending?
The German statistics service, Destatis, reported today that gross domestic product increased by 0.7 percent in the fourth quarter of 2014, handily beating analysts' expectations of 0.4 percent. The actual demand growth data have not been published yet, but it's safe to say they will be higher than expected: "Positive contributions were made mainly by domestic demand," Destatis said.
The U.S. Treasury department has long called on Germany to do something to boost domestic demand to help other euro area economies grow faster. In its October, 2014 international economic report to Congress, it gave Europe's economic leader another kick, saying that "measures to increase domestic demand, particularly in surplus countries like Germany, can help further European and global rebalancing." It praised Germany's 2014 decision to introduce an €8.5 ($9.6) minimum wage as a step in the right direction.