Over the past five years, Germany has done something amazing: It has maintained economic dominance in the face of daunting hurdles that have impeded the growth of surrounding countries.
It’s done this largely by relying heavily on exports.
But along the way, Germany started taking heat from the leaders of other countries — including the United States — because they believe that Germans aren’t doing their fair share of spending.
The theory is that the Germans are pretty good at making stuff other people want to buy, like cars, but they aren’t putting enough of their revenues back into the world economy through consumption.
If the German people would only spend more, then they would boost the economic fortunes of neighboring nations and thereby assist in the recovery of the European Union.
So far, the German people haven’t taken the bait, and I don’t expect them to anytime soon. Not because the Germans don’t understand the situation or don’t want to consume, but because they recognize their own, individual circumstances.
That is: Germany is shrinking… at least in terms of people.
The German population had a mild baby boom at the same time the U.S. and most other Western nations did, creating a bump in the number of people born from the late 1940s through the early 1960s.
However, Germany didn’t have a significant echo boom, or surge in births, during the 1980s through the 2000s, like the rest of us. This has left its population with more old people than young people… a lot more.
As of last year, only 13% of Germans were less than 15 years old, while 21% were over 65. The situation is the same in Japan. The 66% in the middle are skewed toward the older ages. This shows that that the German birth rate is exceptionally low — hovering around 1.4 children per woman of child-bearing age — and has been for more than a decade.
In short, the Germans aren’t having enough children to replace their existing population, much less grow.
Last year, the German census reported that its population had shrunk by 1.5 million people. Current estimates suggest that the country could lose an additional 20% of its population, or 19 million people, by the year 2060.
An aging, shrinking population is not a good thing. It takes a toll on government-provided services, like pensions and health care, and strains the labor force by starving it of incoming workers. It also creates a weird vortex in consumer spending.
As people age, they tend to spend less as they focus on saving for retirement. This is exactly why current pressure to force the German people to spend more won’t work. They don’t want to spend more.
The bulk of them are past their peak in spending and are much more concerned about making their money last through retirement than spending more today just to assist in the recovery of the spendthrifts Spain and Greece.
In order for the German population to increase its spending, there would have to be a dramatic increase in the number of young people in their economy with economic wants and needs that come with going through the early years of adulthood.
Since the birth rate in Germany continues to hover around exceptional lows, this won’t happen anytime soon.
The aging of the populations in Northern Europe, specifically Germany, is one of the main reasons there won’t be a significant economic rebound in the region for years to come.
While the U.S. is still treading water economically, at least we have the horsepower necessary to eventually pull out of our slump because, relatively speaking, we have lots of kids.
While this is a conversation about a Northern European country instead of one of the Club Med nations, the end note is the same: There won’t be a broad economic recovery in the euro zone anytime soon.
The Southern states don’t have any money to spend as they focus on paying down debts, and this very powerful Northern state has no interest in spending.
Expect the euro to come back down in the months ahead as this realization sinks in.
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Ahead of the Curve with Adam O’Dell
The euro has proven quite strong over the last 18 months, gaining nearly 13% on the U.S. dollar since July 2012.