German woes wane for Merkel

The German economy contracted by 0.6 per cent in the final quarter of last year but is widely expected that it will avoid recession and pick up steam this year.

The German economy contracted by 0.6 per cent in the final quarter of last year but is widely expected that it will avoid recession - defined as two consecutive quarters of decline - and pick up steam this year in time for elections in September.

Germany has cruised through the euro crisis so far, avoiding the economic misery that has plagued much of austerity-hit Europe. But the region's economic woes were bound to have an effect on Europe's largest economy eventually. After all, Europe remains Germany's biggest export market.

But Germany has managed to offset much of the decline in European sales with surging exports of cars and machinery to China. Sales to the United States have also been picking up. Most analysts expect the economy to grow again in the first quarter - by around 0.2 per cent.

Industrial output and orders have risen, and the closely watched Ifo business climate index, Germany's most important leading indicator, has increased in the past three months, pointing to improvement ahead.

The chancellor Angela Merkel, fighting for a third term in office, does not need to subject Germans to the tough reforms and austerity measures she has demanded of other nations. Germany did its homework, or part of it, 10 years ago with its Agenda 2010 of welfare cuts and labour market reforms, long before Mrs Merkel took power.

That does not mean Germany is a paragon of efficiency, though. It remains weighed down by red tape, it has yet to tackle much-needed reforms of its inefficient health service and of its regionally fragmented education system, which international studies have shown is failing to cater adequately for the children of immigrants and poorer families.

Mrs Merkel is widely expected to win a third term because she remains very popular, not least because she is seen in Germany as having handled the euro crisis well - meaning she has managed to limit the cost to German taxpayers so far.