Thursday, February 9, 2012

Germany's advantage is labor productivity

Debate continues over Germany's ability to decouple from Eurozone's impending recession. The latest data is not encouraging. Industrial Production in December was down 2.9% month over month vs. expectations of flat for the month.

Germany Industrial Production MoM (Bloomberg)

Whatever the outcome however, Germany should fare much better through the Eurozone recession than most of its neighbors. One key reason German firms can compete quite effectively is their labor productivity. The chart below shows unit labor costs for the largest Eurozone nations - German labor costs have hardly advanced relative to others.

Unit Labor Costs (2002=100, source: BNP Paribas)

Italy is making some improvements, but at this stage it may be too late.  As the Eurozone enters this recession - and it will hit quickly, any state that doesn't have its labor costs under control is going to have trouble competing and will face a shrinking economy.
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