FRANKFURT – Not so long ago, Germany was a European powerhouse: rich, growing, politically strong. But the mighty have fallen.
And it’s not hard to see why this would give the rest of the Eurozone a bad case of jitters. After all, if his older members are struggling, he risks dragging the entire lot down with him.
Germany is by far the largest economy in the Eurozone, accounting for 30 percent of the bloc’s GDP. It is the largest trading partner of more than half of the EU’s 27 countries. Politically, this has allowed Berlin to call many of the shots in the EU.
But Thursday’s data that Germany has slipped into recession did not come out of the blue. It was among the last in Europe to return to pre-Covid levels as economies began to grow again after the pandemic. And that highly drawn-out nature of Germany’s ills — as well as the lack of certainty from the government in Berlin in the past — has convinced experts that this is unclear.
Commerzbank economist Jörg Krämer said: “There is no fundamental improvement”. All important leading indicators in the manufacturing sector were now falling, he said.
The latest first quarter growth estimate showed the German economy shrinking by 0.3 percent. This is a decrease of 0.5% in the last quarter of 2022. The latest figures for the euro zone as a whole show that money supply is growing at a modest 0.1 percent.
We will do it
Analysts said the last contract to Russia was due to a combination of high energy prices fueled by the war in Ukraine and visible structural weaknesses in the country’s economic base, which the post-Angela Merkel coalition government has sought to fix.
Germany was known as Europe’s sick man in the late 1990s and early 2000s as it grappled with the costs of integration following the fall of the Berlin Wall. But it has bounced back strongly, and when other eurozone countries such as Greece, Italy and Portugal faced huge debt and anxiety about the existence of the euro at the start of the decade, Germany may have decided to bail out. His position of strength – and using his own economic success to pull the team up by the bootstraps.
Olaf Scholz, Germany’s chancellor since December 2021, has tried to put a brave face on things, but times have changed. Economic prospects “were very good,” he said at a press conference on Thursday. “We try to solve the challenges we face,” he said.
But the economic crisis will no doubt highlight tensions between the three partners in the governing coalition in Berlin, which has clashed over budget and climate policies.
This risks diverting efforts from an effective policy response: Only half of Germans believe the ruling coalition will last until the end of the legislature’s term in 2025, according to a Forsa poll published by broadcasters NTV/RTL. on Thursday.
A sense of reality
ING Bank economist Carsten Brzeski said, “The optimism at the beginning of the year seems to have given way to more facts,” declining purchasing power, industrial order books and a tight pull on expectations. Financial and weak US growth. “On top of these cyclical conditions, the ongoing war in Ukraine, demographic changes and the current power transition will have a structural weight on the German economy in the coming years.”
A mild winter means Germany, which has been heavily dependent on Russian energy production, has been able to avoid a gas shortage that could force plant shutdowns, but prospects don’t look good.
Even before the downward revision, Germany is expected to be a major contributor to the region’s overall economic outlook. The European Commission’s autumn economic forecast puts German growth at 0.2 percent this year and 1.4 percent next year, compared with euro zone averages of 1.1 percent and 1.6 percent.
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