EYE ON GERMANY: RELATIVE STRENGTH

German GDP for Q3 released today in final form today showed a year-over-year increase of 1.3% suggesting degree of resilience that may make the official forecast of 0.2% GDP growth in 2009 plausible. The “five wise men” government advisory panel’s more pessimistic annual report delivered on the 12th predicted increased unemployment and recommended rate cuts –but even they only foresee flat GDP for next year rather than the negative being factored in other countries.

Two other glass-half-full data points emerged today:

· Q3 data released today by the Federal Statistics office indicated that the balance of trade is contracting; however the numbers suggest that the overall health of the economy remains sound. Exports for the quarter totaled 294 billion EUR, a decline of only 0.37% from Q2 and a year-over-year increase of 3.16%, While Imports totaled 257 billion EUR - an increase of 3.81 over the last period or 5.21% year-over-year.

· The GfK Marktforschung monthly survey of financial services, consumer and savings climate was released today, with the response of German consumers surveyed coming in at 2.2, up from 1.9 last month and much better than the average economist estimates of 1.7. Clearly, the mood of German consumers heading into the holidays will be significantly better than that of many of their neighbors.
We continue to be long Germany via the EWG ETF. As we have stated often, we believe that the German is significantly sounder structurally than other major EU economies and we like it on a relative basis.

Andrew Barber
Director