When Peter Löscher, Siemens' chief executive, told the Financial Times in May last year that Germany would emerge from the recession to “spearhead a fresh wave of industrial revolution”, it seemed a rash prediction. At the time, Europe's largest exporting country was in the middle of its deepest recession in more than 60 years.

Just 15 months on, Mr Löscher's vision is becoming reality. The German export engine has surged back to life and is leading the continent out of the crisis, emerging faster from the downturn than many of its neighbours. Germany's gross domestic product jumped 2.2 per cent in the second quarter from the preceding three months, taking the front rank in the eurozone. Friday's data prompted several economists to predict that its economy will grow by at least 3 per cent this year.

Production levels, exports and profits are rising rapidly in important sectors such as machinery, cars and chemical goods, while unemployment has reached the lowest level in several years. The strength of this “XL upswing” – as Rainer Brüderle, economics minister, calls it – is such that he clichéd German angst has evaporated. German businesses are basking in a summer optimism that contrasts sharply not only with the country's oft-seen pessimism but also with the dark mood in the US and the uncertainty that pervades other parts of Europe. Business confidence in Germany last month reached its highest in three years.

Yet there remain risks that threaten to derail the upswing – and not only because some sectors of the economy might be in danger of overheating. Growth is likely to slow in the remainder of the year, when government austerity measures kick in and companies' inventory restocking is expected to wane. But many executives are even more concerned that Germany's “new economic miracle” – as the domestic media call it – could really be a Chinese economic miracle.

In large parts of the economy, from premium cars to textile machines, demand is being heavily driven by China – raising questions over the extent of the country's dependence on a market whose growth has already started to slow.

For now, however, German industrialists have plenty of reasons to be cheerful. Many plants are running at full speed again, some companies are expanding capacity and many are re-hiring contract workers. Orders in the engineering sector, Germany's economic backbone that includes industrial giants such as Siemens as well as swaths of midsized family-owned companies, shot up by 32 per cent year-on-year in the first six months, following a drop of 38 per cent in the past year.

The order boom is spurring a new willingness to invest. After several years in which companies squirreled away most of their cash, many are ready to replace old equipment and expand their businesses. SAP, the world's largest business software maker, says its German sales grew at a double-digit rate in the first half of this year. “If you think about a company like SAP with such a mature brand and a well-founded marketplace growing at that rate, it speaks to the depth of the turnaround,” says Bill McDermott, co-chief executive.

Several large manufacturers – from Siemens to companies such as Audi, the premium carmaker that is part of Volkswagen – are heading towards record profits this year, driven by a weak euro and a strong position in Asia. Daimler, Audi and BMW all reported record operating profit margins of more than 9 per cent in their luxury automotive businesses in the second quarter, thanks to rapidly rising demand for their high-margin top-class models but also helped by hefty cost cuts initiated in the past few years.

“Germany is benefiting from its industrial strength and export power,” Siemens' Mr Löscher says, pointing to the country's technological edge in growth areas such as infrastructure and green products. Industrial products such as cars, machinery and medical devices make up almost one-quarter of gross domestic product – much more than in most European countries. Germany sold goods worth $13,681 (€10,728, £8,777) per head of population last year, far ahead of France and twice as much as third-ranking Italy.

One reason is Germany's openness to the world, says Hermann Simon, chairman of Simon Kucher & Partners, a German consultancy. “Germans go on holiday everywhere around the globe, whereas other Europeans tend to stay at home and do not get to know the world,” he observes.

Certainly, German industrial groups were often faster than others in tapping markets outside Europe. VW entered China more than 30 years ago, for instance, sowing the seeds for today's market dominance by the multi-branded carmaker. Some of the larger family-owned Mittelstand engineering companies, such SMS Group, a producer of metal processing machines, have been present in China for many decades.

Mr Simon says German specialisation in high-quality market niches makes a lot of its industrial products indispensable: “Companies can postpone such investments but they cannot omit them altogether.” He points to Trumpf, the laser-cutting machine maker, saying: “If all machines made by Trumpf were suddenly to disappear, the global economy would simply collapse, as all sophisticated metal processing companies would have to close down their businesses.”

The twin focus on market niches and exports – even small family-owned engineering companies often sell more than 80 per cent of their production abroad – has left German industry exposed to an amount of volatility that runs contrary to the country's stability-loving mentality. Ulrich Reifenhäuser, owner of the eponymous plastics machinery maker, says of his experience in the past two years: “First we went into a brutal tailspin and now we are in the middle of a steep climb.”

But after strengthening their competitiveness and radically improving their workforce flexibility in the past decade, most companies were able to cope with the roller coaster ride. Many businesses held on to their core staff during the crisis, helped by their own flexibility measures as well as a government-sponsored short-time working scheme where the state chips in for as much as two-thirds of wages lost when working hours are reduced.

“Germany did a great job during the crisis. The consensus between employers and employees allowed managers to concentrate on business,” says Axel Heitmann, chief executive of Lanxess, a large speciality chemicals company. The main pillar of this consensus has been that trade unions such as IG Metall were willing to focus on job security instead of demanding pay rises during the crisis.

This hibernation strategy came at the expense of a temporary drop in labour productivity, but it has paid off because it enabled companies to accelerate swiftly out of the slump. Reifenhäuser is a typical example. When orders more than halved in 2009, the group shed its 120 temporary workers and put large numbers of its 1,200 permanent staff on short-time working. As business came back forcefully this year, the group rapidly re-hired temps and switched back to full production and in some areas even special extra shifts.

While the short-time working scheme known as Kurzarbeit will cost the German state €6bn ($8bn, £5bn) this year alone, it helped to keep unemployment at a low level throughout the crisis. This supported the population's willingness to spend money, although consumption stayed at its usual low level. In July, unemployment stood at 7.6 per cent, one of the lowest rates in years.

Flexibility measures such as Kurz­arbeit helped deal with most of the supply problems that had been dreaded at the initial stages of this apparently V-shaped recovery. While a few smaller suppliers struggled to meet demand in the first half of the year, most companies were quick to reinstate capacity. But some of the most cyclical areas, such as microchips, remain a problem. Infineon, the chipmaker, is for instance lagging behind on its production. In June, Audi and Porsche came close to having to halt car production in some of their plants after Harman Becker, their supplier of car stereos, ran out of the chips its units needed.

“Such a fast recovery cannot go without friction. We had massive problems at the beginning but now production is running smoothly again,” says Mr Reifenhäuser.

But what worries many industrialists is how lopsided the growth is towards Asia and other emerging economies such as Brazil, bringing a large part of corporate Germany into a dangerous dependence on the Chinese market in particular. “Without China we would hardly have seen this recovery – it's a frightening trend,” says Hannes Hesse, head of the VDMA engineering association, adding that demand for textile machines is “almost exclusively” Chinese.

The position is similar, if not quite so extreme, for carmakers. VW calls China its second home market but it really is its first: it sells more cars there than in Germany. Daimler says 20–30 per cent of its sales growth comes from China. But Dieter Zetsche, chief executive, rejects suggestions that it is becoming dependent on that market, saying: “We have a high profitability there but certainly do not have all our eggs in one basket.”

But few doubt that a slowdown in China would hit the German economy harder than others. A number of German industrialists are already warning that the second half of the year will be tougher. “There is no reason to become overly optimistic ... We see a waning recovery in the US and Asia will grow more slowly in the second half,” says Jürgen Hambrecht, chief executive of BASF, the largest chemical maker in the world.

China's gross domestic product growth slowed from 11.9 per cent to 10.3 per cent in the second quarter from the first, reflecting government efforts to restrict bank lending. A continued softening would threaten to derail Germany's export boom at a time when government austerity measures in Europe are upsetting growth prospects in its own backyard.

“In western Europe and particularly in Germany, we expect demand to be weak in the second half of the year. And in China, there is also a chance for a soft cooling down in the second half,” says Hans Dieter Pötsch, VW's chief financial officer.

But such warnings cannot spoil the summery optimism in Germany. Many companies take heart from their overflowing order books, which provide a cushion for a time when the economy will lose momentum. Siemens, for instance, reported an €89bn order backlog last month, the highest in its 163-year history.

“All over the place, we see a stabilisation of the global economy,” Mr Löscher says. “German companies are present on all international growth markets and can profit from this upswing.”