German Economy Sinking With the European Ship

A blog about business and economics.
July 2 2012 8:28 AM

German Economy Sinking With the European Ship

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A photographer takes a picture of the book Dialog on Germany's Future during its presentation in Berlin on Monday.

Photo by Wolfgang Kumm/AFP/GettyImages.

We got a preview of this back on June 21, and now it's offical: German manufacturing output is shrinking.

There are two ways of thinking about this. One is that the recession in the eurozone "periphery" is killing demand for German exports. The other is that the slowdown in China is killing demand for German exports of capital goods. Most likely both factors are in play. The point, however, is that the German economy is not an island and Germany's export-oriented manufacturing sector does not run on sheer hard work and determination. The flows of German savings into lending to southern Europe and back into German exports are a loop in which everyone has a stake, and Germany was fortunate to be specialized in the production of the kinds of goods China needed to import to fuel its own export boom.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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