The largest economy in Europe is threatened by recession.. Germany’s economy is in a “dramatic” situation

2024-02-22 12:37:10

The German economy is threatened by recession, and Berlin is reducing its estimate of GDP growth to 0.2% for the current year from 1.3% in previous expectations.

• The German economy is threatened by recession

The new forecasts presented by the German government on February 21 regarding the recession of the largest economy in Europe confirm what Economy Minister Robert Habeck said when he described the situation as “tragic.”

Berlin lowered its GDP growth estimate to 0.2% for the current year from 1.3% in previous expectations, as growth began to decline last year.

There was a first warning sign with GDP falling by 0.3% in 2023.

At the end of the year, the German government was still hoping to return to growth in 2024, and hope was dashed by these new expectations, especially since the expectations are not more optimistic for the coming years, as growth is expected to stagnate on average at 0.5% if measures are not taken. radically to correct the situation.

The country never returned to the level of growth it had before Corona, and if we compare Germany’s performance with other great powers in recent years, it is much lower.

Over five years, its growth remained stagnant and reached 0.7% cumulatively, while in all European countries it managed to grow by 4% since 2019, according to the German Statistical Office.

Loss of speed

To explain this situation, there is the issue of the German industry, which has been suffering for two years due to excessively high energy bills. The German industry has witnessed an increase in its costs since the beginning of the war in Ukraine and the cessation of Russian gas supplies.

Production of manufactured products fell by 2% in 2023, and chemistry and steel were severely affected, and their production is still approximately 20% lower. from their level in 2021, indicating permanent job losses in these traditional “Made in Germany” sectors.

Groups such as BASF, Bayer and Covestro also signed a forum this week with regarding sixty industry groups to request support measures from EU leaders.

In addition, deteriorating financing conditions associated with rising interest rates lead to a slowdown in investment.

investment

Experts agree that Germany needs investment to revive its economy, but there is a rule that prevents it from doing so, which is the “debt brake” system that allows the state to limit its spending, because the annual deficit in the state’s general budget must not exceed 0.35% of the gross domestic product.

This does not necessarily bode well: Germany already needs to make additional investments to modernize its economy, and the country has accumulated worrying delays in road and rail infrastructure, but also in other areas such as digital transformation.

Read also: The eurozone economy narrowly avoids recession, and Germany is the most vulnerable
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