Germany: will the dam burst?

I’ve just returned from Germany, visiting the great in government, bureaucracy, Bundesbank and the European Monetary Institute. I’m convinced the Bundesbank will raise interest rates by 25 basis points before the year-end and by around 200bp by the end of 1998.

The German economy is now recovering, as export-led growth is starting to spill over into domestic demand. Capacity utilization is higher than in the US. Companies are making huge profits, which have grown dramatically as a share of national income because unit labour costs have dropped as corporations rationalize.