Germany business prospects

At one end of the scale is Germany's largest lender, Deutsche Bank, which reported its second quarter profits were up by nearly 70 percent, at the other is struggling German automaker Daimler, which posted a huge loss of over a billion euros.

In recent weeks German consumer confidence has risen, as has the feeling among the country's top executives that the worst may be over for Europe's largest economy. But is that really the case?

"I think that we are approaching the bottom of the recession," said Thomas Mayer, chief European economist at Deutsche Bank. "In the second half some positive growth rates may well return. So going forward it would seem to me that both the economy as well as the corporate sector will recover."

Consumer confidence still upbeat

Meanwhile, German consumers appear to be pinning their hopes on an early end to the crisis. A closely watched study on consumer confidence suggests that a combination of economic optimism and record-low inflation will have German consumer confidence surging in August. The forward-looking GfK index, which was released on Monday, rose to an estimated 3.5 points for August from 3.0 in July.

Friedrich Heinemann is head of public finance at the Center for European Economic Research. He says that the German economy has in large part been propped up by consumer spending.

"The other side of the coin is the relative strength of private consumption, which so far tends to stabilize the economy in the sense that otherwise it would even be much worse. So the German consumers to a certain extent still live in a past of good economic development when incomes increased considerably."

"This really is the split picture of the Germany economy right now: The heavy damage in the exporting industries and the still relatively courageous private consumers."

Heinemann says that in the broader European context the German economy is overall benefiting compared to other large European economies such as Italy or France. He says the reform policies and wage moderation of the past years have started to kick in.

Germany could emerge stronger from crisis

"This has really boosted competitiveness of the German economy. At the moment world markets are starting to recover again and then this good German competitiveness will pay off. German exporters will be in a position to regain their shares in the world market."

Fabian Christandl is an expert in economic psychology at the University of Cologne. He believes the fact that Germans are optimistic is due largely to the fact that the German economy as a whole is very positive about the future.

"I basically think that Germans still do not feel much affected by the financial crisis compared to other European countries. The social welfare system may play a crucial role, but what's probably more important is that prior to the financial crisis the economic situation in Germany was better than in the years before."

"It seems many Germans still believe that the situation is quite positive, which is also reflected in the very positive consumer climate," Christandl adds.

Despite that optimism, the German Institute for Economic Research said Wednesday that the German economy would still shrink by around six and a half percent this year - and that could push the unemployment rate, currently at just over eight percent, into double digits in 2010. That news came as official data showed that Germany has seen a decline in the price of goods and services, otherwise known as deflation, for the first time since 1987.

Author: Darren Mara /ai
Editor: Neil King