The German economy is treading water, with no improvement in sight. The multiple crises of recent years have exposed the weaknesses of the country’s business model.
It was just before the turn of the millennium that the British business magazine The Economist passed a verdict on the German economy, referring to the country as the sick man of Europe. Such an assessment served as a wake-up call for German politics, which, still intoxicated by the economically strong years after reunification, had been dragging its feet on reforms. The government of Chancellor Gerhard Schröder then reformed the labor market, which finally paid off: In 2014, a group of economists from Berlin and London wrote that Germany had developed“From sick man of Europe to an economic superstar.”
The German economy is again struggling. For two quarters in a row, its economic output has declined — something economists label a “technical recession.” In the most recent quarter, Germany’s gross domestic product (GDP) has stagnated at the level of the previous quarter, and all the important economic indicators show a decline.
“Germany’s economic situation is darkening,” was the conclusion of the president of the ifo Institute, the Leibniz Institute for Economic Research at the University of Munich, Clemens Fuest. The ifo Institute surveys 9,000 executives each month about the current state of their businesses and their expectations for the next six months. The resulting ifo Business Climate Index (July 2023) has fallen for the third month in a row. The ifo researchers expect Germany’s GDP to decline again during the current quarter.
The situation is also clear to Commerzbank chief economist Jörg Krämer: “Unfortunately, there is no improvement in sight,” Krämer told the Reuters news agency. “The worldwide interest rate increases are taking their toll, especially since German businesses are already unsettled due to the eroding quality of their location.”
Industry is no longer the showpiece
Compared with other industrialized nations, Germany is performing exceptionally poorly — and according to an estimate by the International Monetary Fund (IMF) will be the only large country to have a shrinking economic output. The country’s industrial sector, the showpiece of its economy, is causing the most concern. It accounts for a relatively large portion of Germany’s gross value added (GVA), about 24%, and hasbeen suffering through a global economic slump. The engineering and automotive sectors, which are heavily reliant on exports, are particularly feeling the effects of foreign customers holding back.
Companies in the manufacturing industries are still saving themselves thanks to the large backlog of orders that accumulated during the COVID-19 pandemic because of signifcant supply chain problems. But these orders will soon be fulfilled — and new ones are coming in more sparsely: From March until May, the number of orders received was just over 6% down on the three months prior.
Source : dw
