Germany’s slipped into recession and everyone should be worried

FRANKFURT — Not too long ago, Germany was the powerhouse of Europe: rich, flourishing, politically strong. But the mighty have fallen.

And it̵7;s not hard to see why it’s giving the rest of the eurozone a bad case of the jitters. After all, if its largest member is struggling, it runs the risk of dragging them all down with it.

Germany is by far the largest economy in the eurozone, accounting for about 30 percent of the bloc’s economic output. It is the largest trading partner of more than half of the 27 countries of the European Union. Politically too, it has enabled Berlin to do much within the EU.

But Thursday’s data, which showed Germany slipping into recession, did not come suddenly. It was already one of the first to return to pre-COVID levels in Europe when economies began to rebound after the pandemic. And it is the very drawn-out nature of Germany’s malaise – as well as the past lack of certainty from the government in Berlin – that has convinced experts it is not a blip.

“A fundamental recovery is not in sight,” said the Commerzbank economist. Jörg Kramer Said. He said that all the important leading indicators of the manufacturing sector are now falling.

The latest first quarter growth estimate showed the German economy contracting by 0.3 percent. This was followed by a reduction of 0.5 per cent in the last quarter of 2022. The latest data for the eurozone shows the currency block up marginally by 0.1 percent.

we will work it out

Analysts put the latest contraction down to a combination of higher energy prices stemming from Russia’s war in Ukraine and clear structural weaknesses in the country’s economic foundations, which Angela Merkel’s coalition government has struggled to fix.

Germany was known as the sick man of Europe in the late 1990s and early 2000s as Germany grappled with the costs of reunification after the fall of the Berlin Wall. But it bounced back strongly, and while other eurozone countries such as Greece, Italy and Portugal were facing huge debt and concerns about the survival of the euro currency at the beginning of the last decade, Germany could dictate the terms of its rescue. Was. Position of strength – and use your own economic success to pull you up the block by your bootstraps.

But times have changed, even as Olaf Scholz, who has been German chancellor since December 2021, has tried to put a brave face on things. Economic prospects were “very good,” he told a news conference on Thursday. “We will find solutions to the challenges we are facing.

But there is little doubt that the economic woes will only heighten tensions between the three partners in the governing coalition in Berlin, who are already sparring over budget and climate policies.

This, in turn, risks diverting efforts from an effective policy response: only half of Germans believe the ruling government coalition will last until the end of its legislative term in the fall of 2025, according to Forsa pollsters published by broadcasters NTV/RTL. A poll conducted on Thursday showed.

sense of reality

“The optimism at the start of the year has given way to a greater sense of reality,” said Carsten Brzeski, economist at ING Bank. Monetary and weak US growth. “On top of these cyclical factors, the ongoing war in Ukraine, demographic changes and current energy transitions will put a structural weight on the German economy in the coming years.”

While a mild winter meant that Germany, heavily dependent on Russian energy imports, managed to avoid the worst-case scenario of gas shortages that would have forced entire factory shutdowns, the prospects are not looking good.

Even before the downward revision, Germany was expected to prove a drag on the region’s overall economic prospects. The European Commission’s spring economic forecasts put German growth this year at 0.2 percent and 1.4 percent next year, compared to eurozone averages of 1.1 percent and 1.6 percent, respectively.