Recently I was going through the German real Investment by type of good (based on Ameco data) and noticed something quite interesting:
Breaking down investment in three major categories and using 1991 as base year we see that:
- Non-residential construction increased for a few years after the re-unification until 1995 and then went on a long-term secular decline path until mid-2000’s. Since then it has remained roughly stable between 80-90% of the 1991 value.
- Equipment investment went through large long-term swings and a large ‘bubble’ between 2004 and 2008. It regained a large part of the 2009 losses but appears to be on a stable path around 130%.
- Residential construction (dwellings) is the most interesting. It increased significantly after re-unification until the end of the 1990’s decade after which Germany went through a ‘balance sheet recession’ correction with construction slowly returning back to 1991 levels. But since 2009 construction has rebounded strongly and is now 20% higher than the trough.
Residential construction can account for a part of Germany’s positive growth since 2009. In contrast to earlier Euro years, (real) house prices are now in positive territory fueling new construction and a wealth effect for house owners (who can increase their consumption). This allows the German economy to decouple up to a point from the rest of the Eurozone and achieve growth based on internal demand (which is now the main contributor to overall growth and not external net demand).
If this picture continues for the upcoming years we might see a structural change in the Savings – Investment surplus of Germany which will obviously affect its current account. This will also depend on the future fiscal stance of course.