What happened to the former "top students" of the European economy?, It is expected that the German economy will shrink by 0.4% this year

On September 11th local time, the European Commission released its summer economic forecast, which predicted that Germany's economy would shrink by 0.4% for the entire year, making it the only major EU country with negative economic growth. Coincidentally, in July of this year, the International Monetary Fund also predicted that Germany's gross domestic product would experience a negative growth of 0.3%, making it the only economy among the 22 surveyed. The two major international organizations have made pessimistic predictions about the German economy this year from both European and global perspectives.

△ Economic growth forecast for major European countries

Economic growth forecast for major global economies. Screenshot of the official website of the International Monetary Fund (IMF)

At the turn of the century over 20 years ago, The Economist magazine in the UK referred to Germany as the "sick man of Europe". Now, the world has to ask this question again: is Germany the "sick man of Europe"?

The German economy is facing many problems

Except for the GDP growth rate, all other economic indicators in Germany have also declined. The Business Prosperity Index of the Ivan Institute of Economics has been declining for four consecutive months. The output value of chemical products in Germany's main industrial products decreased by 18% compared to 2019, and the output value of automobiles decreased by 26%. In July this year, Germany's exports to non EU countries decreased by 2.9% month on month, and the trade surplus decreased to 82 billion euros, a sharp decrease of 60% compared to 200 billion euros before the pandemic. In the first six months of this year, as many as 8400 companies in Germany filed for bankruptcy, an increase of 16.2% compared to the same period last year. The World Competitiveness Annual Report released by the International School of Management and Development in Lausanne, Switzerland has lowered Germany's competitiveness ranking from 6th place in the world to 22nd place.

The main reasons for Germany's deep illness are high inflation, high interest rates, and weak external market demand. High inflation has led to an increase in production costs for businesses and a decrease in household consumption, while high interest rates have suppressed investment and borrowing. The decrease in external market demand has directly impacted Germany's import and export trade. These three major causes seem to come from pressures outside of Germany, but Germans themselves seem helpless when facing these pressures.

German economist Thomas Meyer: Germany's manufacturing industry is more impacted by high interest rates and high energy prices than the service industry. For example, producing a car requires a large amount of energy consumption; Alternatively, steelmaking and mechanical processing also require energy. Meanwhile, when interest rates are high, people's consumption will also be limited. In contrast, the service industry in other countries is less sensitive to energy prices and high interest rates.

According to an article published by The Economist on August 17th, Germany's outstanding performance in traditional industries over the years has overshadowed its lack of investment in new industries. Complacency and obsession with fiscal prudence lead to too little public investment. Overall, Germany's investment in information technology accounts for less than half of its GDP compared to the United States and France. In addition, there is also the worsening geopolitical situation, the difficulty of carbon reduction, and the pain brought about by population aging.

Screenshot of The Economist report in the UK

Various sectors in Germany are suffering from economic downturn

Since the fourth quarter of 2022, the German economy has experienced three consecutive quarters of decline or stagnation. The Federal Bank of Germany released a report at the end of August, predicting that the German economy will continue to experience zero growth in the third quarter of this year. Faced with this severe situation, the German federal government has yet to introduce substantial stimulus measures, but the German people and businesses have deeply tasted the bitterness of economic downturn. According to the latest poll released by the authoritative German polling agency, the Forza Public Opinion Survey, on September 10th, 46% of German citizens believe that their lives will become worse in ten years than they are now; 32% of people believe that their situation will remain unchanged; Only 17% of people believe that they will live better in the future.

Michael Wick, Vice President of the German Pasteurs Association, runs a coffee shop with a history of 387 years. His bakery now pays four times the electricity bill. He noticed that many of his peers have been forced to close stores and close down since the beginning of this year due to insufficient income and inability to continue operating. Vick is deeply concerned about the stagnation of the German economy.

Michael Wick, Vice President of the German Pastry Association: We cannot make up for losses solely by raising prices, because high inflation already suppresses people's desire to spend, and people are more cautious when spending money. However, the federal government has not provided necessary support and assistance to small and medium-sized enterprises, and everyone is powerless to do so. All of this has led to difficulties in the handicraft industry.

Sukorowski, the general manager of German glass processing enterprises, also said, "The federal government must establish clear and clear regulations on funding support plans, energy policies should be sustainable and stable, and we must protect the economy and producers of Europe while preserving the Asian market."

Screenshot of a report by German television news channel

The right medicine for Germany's economic recovery

More than 20 years ago, when the British last mocked Germany as the "sick man of Europe", the Germans elected two governments, Schr ö der and Merkel, and adopted a series of practical and effective economic policies. On the one hand, they repaired relations with neighboring countries, obtained cheap energy supply, and vigorously expanded the Chinese market to find markets and ways out for German industrial products, thereby promoting steady growth of the German economy for 20 years. Germany became the locomotive of the European economy and led the European Union to overcome the two major obstacles of the US subprime crisis and the European debt crisis.

The external and internal environment in which Germany is now located has changed compared to the beginning of this century, but the basic structure of the German economy has not changed. Germany, which was founded on industry, still cannot achieve economic development without cheap energy, raw material supply, and a vast external market. The successful experience of the previous government is still to a large extent the right medicine and key to overcoming the difficulties of the German economy.