The blast from the past? Grim forecast for Germany

According to leading business leaders and experts forecast for Germany are grim, predicting tough times ahead for Europe’s largest economy.

Source: klix.baMonday, June 26, 2023 | 16:57

After falling into recession at the beginning of the year, it seems that Germany will end the year in the red and at the bottom of its Eurozone competitors, reports Bosnian Klix.

Although the German government still predicts the growth of GDP this year, the main economic institutes and the IMF predict a decline of 0.2 to 0.4 percent on the other hand. Rising inflation, painful interest rate hikes, a slow recovery in China’s key export market, and high energy costs are weighing on these activities.

“This is not going to be a temporary problem,” some analysts warn, reports France24. “At the moment, we see the country facing a growing number of challenges,” said Siegfried Russwurm, head of the influential BDI industrial lobby. Mr. Russwurm pointed out that an increasing number of companies, including small and medium ones, are working on relocating part of their activities from Germany.

The media headlines remind of Germany’s status during the 1990s fearing that Germany used to be Europe’s “weak link”, recalling the period before 2000 when the country struggled on international markets and faced high levels of unemployment.

German Chancellor Olaf Scholz is now pointing to a different economic era. In an interview with German media in March, he said the drive to achieve climate neutrality by 2045 would return “growth levels to the 1950s and 1960s,” the era of West Germany’s postwar “economic miracle.” For the Social Democratic chancellor, the huge spending needed to install new wind turbines, build electric vehicles, and reduce pollution from steel production will create a virtuous circle of prosperity.

But the vision of a new golden age of the economy due to the transition to green energy leaves some experts skeptical.

“The transition will primarily see billions of euros invested in replacing existing stocks of fossil fuel technologies with renewable technologies, at significantly higher costs.

This will not lead to additional economic growth in the short term,” Russwurm said. The country is also hampered by structural weaknesses that hamper economic performance: a slow bureaucracy, low levels of digitization, and an aging population that could lead to labor shortages. Mr. Timo Wollmershauser from the Ifo economic think-tank believes that “If the population is sinking, the GDP will not grow either.”

With its economy heavily reliant on manufacturing, Germany appears to be suffering from energy costs that have risen since the start of the Ukrainian war, although the prices have slightly dropped from their early peaks.

Russia has long been Germany’s main source of gas, supplying huge quantities at relatively low prices to the country’s biggest industrial groups.