German growth is strong but slowing.

Whether or not one believes that Germany's economy is doing well in 2007 after a strong performance in 2006--according to International Monetary Fund (IMF) statistics a 2006 expansion of 2.7 percent and set to post 2007 growth of 1.8 percent--the fact is that German consumers believe it. A July 27, 2007 story filed from Frankfurt by the Associated Press (AP) summarized a study conducted by the Gfk Group (Nuremberg).

Gfk asked respondents to look forward to August 2007 so it could calculate a "consumer climate" indicator for the month. The indicator increased to 8.7 points for August 2007 from 8.5 points for July 2007.

But German consumers had some concerns. In its story, the AP quoted a Gfk statement as follows. "Rising interest rates, continuously high energy prices, as well as a strengthening euro give an impression to the consumers that the current dynamics of the German economy may weaken."

Certainly the IMF in its April 2007 forecast cited above expects that. But Germany's problems may be more fundamental and long term than the Gfk study reveals.

A July 30, 2007 posting on a website developed and maintained by the Center for Economic Policy Research (CEPR) (London), specializing in research based economic commentary, says that Germany's renowned manufacturing prowess may no longer be a viable competitive model for the rapidly developing global marketplace soon to be dominated by India and China.

The problem for Germany is that the manufacturing base of both India and China is increasing in sophistication. Both countries have human capital that is advancing in skill along with the technology. And both countries maintain a wage scale lower than Germany's, meaning that China and India are likely to win the competitive battle.

The solution for Germany, says the posting authored by an economics professor from the University of California, Berkeley, is transition to a service economy. But this may not be so easy. "Many Germans have a visceral distaste for service sector jobs." Manufacturing jobs are regarded as higher status with worker perception of service jobs placing them in a perceived inferior position to their customers.

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