Markets News Wednesday: German economy grew 3.6% in 2010 - - the best performance since reunification in 1990
By Finfacts Team
Jan 12, 2011 - 5:36 AM

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Germany: The German economy grew strongly in 2010. With a  +3.6% increase in the price-adjusted gross domestic product ( GDP), growth was the highest since German reunification in 1990, according to the federal statistics office, Destatis.

The economic recovery occurred mainly in spring and summer of 2010. A year earlier, Germany had still experienced the most serious recession since World War II: The price-adjusted GDP slumped by 4.7% in 2009.

Destatis said today that what was striking in 2010 was the fact that economic growth was not only based on foreign trade, but also on domestic demand. Capital formation in machinery and equipment showed a particularly noticeable increase on the previous year (+9.4%) though, admittedly, it had also recorded the strongest decline in 2009. Capital formation in construction showed a lesser increase (+2.8%); however, it had seen a much lesser decline in the year of the crisis, too. Final consumption expenditure, too, was up in 2010. In price-adjusted terms, final consumption expenditure of households increased 0.5%, while government final consumption expenditure rose even by 2.2%.

As in many years before the crisis, foreign trade was a major driving force for economic growth in Germany in 2010. After negative growth rates had been recorded in 2008 and 2009, foreign trade in 2010 was again a pillar of economic development. Exports were up a price-adjusted 14.2%, while imports increased less strongly (+13.0%). Hence the balance of exports and imports (net exports) made a positive contribution of 1.1 percentage points to GDP growth in 2010.

The economic performance in 2010 was achieved on an annual average by about 40.5m persons in employment whose place of employment was in Germany. That was an increase of 212,000 persons or 0.5% on a year earlier - - the number of persons in employment reached a new all-time high.

According to provisional calculations, general government net borrowing amounted to €88.6bn in 2010. Related to GDP at current prices, this leads to a deficit ratio of 3.5%. After a slightly positive balance in 2007 (+0.3%) and 2008 (+0.1%) and a deficit ratio of 3.0% in 2009, the reference value of 3% of the GDP laid down in the European Union's Maastricht Treaty was exceeded in 2010 for the first time in five years.

Economic View: Beefing up of the EFSF becoming more likely; Goodbody chief economist, Dermot O’Leary, comments  -- "It shouldn’t come as any great surprise given the continuing stress in European sovereign bond markets that European policymakers are, once again, being pushed into a response. Responding to problems when they present themselves, rather than getting ahead of them, has been a key theme of the current crisis in Europe.

Portugal’s auction (2014 and 2020 paper) this morning will be a key barometer of the current market mood, but we already know that the price that Portugal will pay for borrowing will be unsustainable for that country in the medium-term. The current financial support mechanisms can deal with Portugal, but, beyond that country, it is becoming clear that the mechanisms need to be expanded. Up to now, European policymakers have denied this, but Olli Rehn, the EU Commissioner for economic and monetary affairs, makes an important contribution to the debate in this morning’s Financial Times.

He backs the widening of the scope of its activity. The FT suggests that one such way of widening the scope of the EFSF would be to give it the ability to buy up bonds of euro-zone sovereigns. This is something that the ECB would undoubtedly support, given its reticence in getting involved in what it believes to be fiscal policy matters by buying up government bonds since the Greek crisis last May. Some officials are also backing the EFSF to issue short-term loans to countries that are solvent, but are experiencing liquidity problems.

The results of the auctions today and tomorrow will matter and provide an input into the discussions by EU finance ministers at their first meeting next week. They need to act quickly and comprehensively to shore up confidence before it’s too late."

Brian Devine, chief economist at NCB Stockbrokers joined CNBC's Anna Edwards in Dublin on Tuesday, to discuss Ireland's economic recovery following the bailout it received in 2010:

Portugal in the spotlight: Davy economist, Conall Mac Coille, comments - - "Today markets will focus on Portugal's efforts to raise €1.25bn in a bond issue. Portugal has a heavy burden of debt rescheduling this year with around €20bn of bonds in total maturing in 2011. Hence, Portuguese bond yields have risen sharply over the past year. In recent days the ten-year bond rose to above 7%, a similar level to the yields Irish and Greek bonds reached before their subsequent bailouts.

Yesterday, the ten-year yield fell below 7% following bond purchases by the ECB and also news that Japan was joining China in purchasing euro-area bonds to relieve the European debt crisis.

Nevertheless, the outcome of today's bond auction by Portugal will be keenly watched. If Portuguese bond yields continue to rise, markets will interpret that as indicating that a bailout from the EU/IMF is more likely. Denials by officials that France and Germany have put pressure on Portugal to accept help have been less than convincing.

Although the current IMF/EU fund could easily cope with the funding needs of the Portuguese sovereign (the likely package would be smaller than that for Ireland or Greece), such a bailout would inevitably turn the market's focus to other European countries. The most likely candidate on the list of indebted European economies is Spain – a far more important economy in terms of size for the euro area. For now though, European policy makers appear to be content with a piecemeal reactive response as the crises emerge. So a bailout for Portugal is more likely to reinforce investors' concerns with respect to euro-area sovereign debt."

The Spanish mortgage situation doesn't represent a threat for the country's financial sector, Matias Rodriguez Inciarte, vice-chairman of Santander, told CNBC. Spanish companies are well diversified internationally, he added:

US Markets

On Tuesday, the Dow Jones Industrial Average rose 34.43 points, or 0.30%, to 11671.88.

The Nasdaq Composite rose 9.03, or 0.33%, to 2716.83. The Standard & Poor's 500 index gained 4.73, or 0.37%, to 1274.48.

Asia Markets

The MSCI Asia Pacific rose 0.9% Wednesday.

Japan's Nikkei 225 inched up 0.02%; China's Shanghai Composite rose 0.62%; Australia's S&P/ASX 200 Index added 0.29% and India's Sensex added 1.69%.

Asia benchmarks

Finfacts Reports

Irish exports of food/ drink rose 11% in 2010 after 15% dip in 2009, 6.5% fall in 2008 -- Exports amounted to 4.9% of total exports
US Economy: Three themes to dominate debate around the improving economic outlook for 2011
Architect of the euro warns of risk to single currency
Germany: Industrial production almost returning to pre-crisis level
Dr. Peter Morici: The US trade deficit and the jobs drought
Markets News Afternoon: Talks reported on increasing Eurozone bail-out fund; Fyffes gains from banana price rise
Irish tourism had worst year in 2010 since 1998; Biggest overseas market - - Britain - - key to recovery
Total of 17,587 new residential and commercial buildings were identified across Ireland in 2010 - - down 82% compared to record high in 2007

In Europe, the Dow Jones Stoxx 600 is up 0.83% in early trading Wednesday.

The ISEQ has risen 0.47% in Dublin.

CRH is up 0.03%; Elan has added 1.84%; BoI has gained 3.58%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report


The euro is trading at $1.3033 and at £0.8322.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.


The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

On Thursday, July 15, 2010, the index  fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak; The BDI fell 15 points or 1% to 1,480, on Tuesday this week - -  a fall of more than 30% since early December and the lowest since Apr 2009. The plunge has been triggered by an oversupply of ships.

Crude oil for February 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $91.60 barrel up 49 cents from Tuesday's close. In London, Brent for February delivery is trading on the International Commodities Exchange at $98.29.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,384.10, up $2.80 from Tuesday's close.

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