From bad to worse theGerman economywhich only for a more statistical than substantive reason avoided a formal recession in the third quarter. The PMI index for services fell to 49.4 points in November from 51.6 in October, to its lowest level since last February. A drop below 50 points signals a contraction in activity, while above 50 the sector is growing. The numbers relating to manufacturing are even worse: PMI rose slightly to 43.2 points from 43 in October, but still well below 50 points, a level it has not reached since July 2022.
And so the composite PMI index, i.e. which takes into account both the two main economic sectors, fell to 47.3 points from 48.6 in the previous month and to its lowest level in 9 months. It has been below 50 since last July.
Not just the German economy in trouble
And if the German economy sends chilling signals, the French one is no different. Services dropped to 45.7 points and manufacturing to 43.2 points. The composite index thus collapses to 44.8 points. A decline in GDP is also expected France for this last quarter of the year, after the surprise acceleration in the third, driven by the Paris Olympic Games.
Inflationary pressures accelerate in November
There is cause for concern about the situation in Germany, in particular. A serious political crisis is taking place in Berlin, with Chancellor Olaf Scholz due to be voted out of confidence by the Bundestag on December 16th. Early elections will most likely take place on February 23rd. For another three months the Germans will be on the election campaign. Worst of all, there is no prospect of the formation of a new stable government even afterwards. The European Central Bank (ECB) is expected to cut i interest rates for a fourth time also in December, but he cannot afford risky moves.
If it is true that the entire Eurozone is in trouble, a negative signal on prices is coming from Germany: the inflationary pressures in the services sector they accelerate in November, while they decrease in manufacturing.
But the tertiary sector accounts for 72% of the German economy compared to just over 22% for manufacturing. This means that inflation in Europe’s largest economy could accelerate again this month, when it was already at 2% in October. Therefore, the ECB is forced to exercise caution and this does not contribute to supporting domestic demand, while exports in the coming months will be at the mercy of the Trump administration’s tariff policy.
Next government in Germany without a compass
Germany would need to support the German economy. As? There are two alternatives: the path of debt to increase the public investmentsstuck at 3% of GDP, among the lowest percentages in Europe; a mix of tax cuts, liberalization of services and reduction of the bureaucratic burden. In short, more debt in defiance of the current one Debt brake constitutional or reforms. The first hypothesis would become more likely with a Social Democrat-led government, the second would prevail with a next Christian Democrat chancellor. And, unfortunately, a new majority will emerge from the elections, once again neither fowl nor fowl. Yet another is expected Grand coalition in Merkelian style, which will not face any knot and which will give one blow to the barrel and one to the rim. No direction, no credible stimulus to growth.
Not only should we be pessimistic about the nature of the next federal government, but among other things the timeframe for its birth may not be short. In the meantime, Germany will continue with the provisional exercise, having not been able to present a budget law for 2025. Real paralysis. As if that wasn’t enough, it’s also there in Paris political impasse. Michel Barnier’s government has no majority in the National Assembly and is based on the benevolent abstentions of Marine Le Pen’s Rassemblement National.
He will pass the 60 billion austerity package without a parliamentary vote, by virtue of a constitutional provision. However, the right could vote on the no-confidence vote presented by the left if the judges sentence its leader to a 5-year ban from holding elective office.
German economy drags Eurozone into stagflation
The German economy has no longer been the locomotive of Europe since the pandemic. The problem is that it is becoming a burden. Instead of contributing positively to the growth of the area, it is slowing it down due to declining GDP and still high inflation and perhaps further trend growth. There is a serious risk of a devastating one “stagflazione“ on the continent, especially if the price of gas were to remain at current levels, having returned to being more expensive than a year ago. And even on the geopolitical front, the area shows no signs of life, caught between the position of the Biden administration and that of the opposite tenor led by Donald Trump.
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The German Economy: A Comedy of Errors
Oh, let’s dish the dirt on the German economy! It’s like watching a bad sitcom that’s been renewed for two seasons too many. I mean, just when you think things can’t get any worse, they drop below 50 on the PMI index for services—49.4 to be exact! It’s supposed to indicate growth, but we’re officially in contraction territory. They could put a “Closed for Business” sign up and no one would notice.
Not just the German economy in trouble
And hold on! If you thought Germany was having a rough time at the comedy club, France just walked in with an even worse haircut. Services plummeted to 45.7 points—what a dumpster fire! Manufacturing isn’t faring much better at 43.2. If this is a competition for who’s having the worst economy, the Eurozone just became a reality show with only bad contestants.
Inflationary pressures accelerate in November
Now let’s talk about inflationary pressures. Germany is in a real pickle, folks. The Chancellor, that lovable Olaf Scholz, is about to be voted out of a job like he’s throwing a surprise party for himself—no one’s showing up! Voted out of confidence on December 16th? That’s like being told you’re not getting dessert before your main course. Nobody wants to be last on the list when the Bundestag opens for business. It’s a wild circus act there, with the promise of early elections in February—but will it change anything? Spoiler alert: probably not.
And there’s the European Central Bank like a confused parent, expected to cut interest rates again, wondering who’s going to pay the bills while trying not to shout, “Be careful, kids!” amidst all the chaos.
Next government in Germany without a compass
So, what’s the plan for Germany’s next government? Well, grab popcorn. They seem to be flirting with two approaches – more debt like a teenager at a credit card company or tax cuts that would make anyone’s head spin faster than a disco ball. Let’s face it; the buzzword of the hour could just be “Grand Coalition”—which frankly sounds more like an overpriced hotel room than a coherent government strategy.
All this means Germany will keep stumbling like an exhausted marathon runner who forgot to pick up their water bottles along the way—no budgetary plans and plenty of indecision. It’s political paralysis—again! Now that’s a plot twist nobody was asking for.
German economy drags Eurozone into stagflation
Don’t let me get started on stagflation. The German economy has officially given up trying to be Europe’s take-the-lead locomotive and is more like a broken-down train on the wrong track. The only thing it might be dragging is the Eurozone down with it! And if gas prices play hard to get, just brace for the Eurozone to transition into “stagflation” land—a theme park no one wants to visit.
The geopolitical landscape isn’t helping either, with Europe stuck between the clashing wills of the US administration and the drama of the next potential American election. And we all know how those markets love drama!
Conclusion: A Comedy Set in a Tragedy
So there you have it, folks. The German economy is trying its best to keep it together amidst another season of political drama and financial woes. It’s like watching a horror movie where the audience is screaming, “No! Don’t go in there!” But in this case, they already have…and it’s a wreck in there. Keep your eyes peeled, your wallets close, and remember—never underestimate the power of a good joke. Because sometimes, laughing is all we’ve got!
The situation for theGerman economy has deteriorated sharply, teetering precariously on the brink, with the nation only managing to stave off a formal recession in the third quarter due to more favorable statistical factors rather than genuine growth. The PMI index for the services sector plummeted to 49.4 points in November, down from 51.6 in October, marking its lowest point since February of this year. Notably, a PMI reading below 50 indicates a contraction in economic activity, whereas anything above that threshold suggests expansion. Alarmingly, manufacturing indicators present an even bleaker picture: the PMI rose marginally to 43.2 points from 43 in October, yet it remains far beneath the critical 50-point mark, a milestone that has eluded the sector since July 2022.
Not just the German economy in trouble
The troubling economic signals are not exclusive to Germany. The French economy is similarly suffering, as evidenced by a drop in services to 45.7 points alongside a manufacturing PMI of 43.2 points. Consequently, the composite index tumbles to 44.8 points, indicating substantial economic malaise. Furthermore, analysts anticipate a contraction in GDP for France in the final quarter of the year, following an unexpected acceleration in growth during the third quarter fueled by the upcoming Paris Olympic Games.
Inflationary pressures accelerate in November
There are growing concerns regarding the economic situation in Germany. A significant political crisis is unfolding in Berlin, with Chancellor Olaf Scholz facing a confidence vote in the Bundestag set for December 16th. The possibility of early elections looms large, likely to occur on February 23rd, leading to an extended campaign period and no immediate prospect for a stable government thereafter. Additionally, the European Central Bank (ECB) is expected to lower interest rates for the fourth consecutive time in December, though there is mounting pressure to avoid any reckless decisions.
If it is true that the entire Eurozone is in trouble, a negative signal regarding price stability is emerging from Germany. Inflationary pressures within the services sector have accelerated in November, even as they wane in manufacturing. The services sector, comprising 72% of the German economy compared to a mere 22% for manufacturing, indicates that inflation may rise once again this month, particularly given that it was already recorded at 2% in October. As a result, the ECB must proceed with caution, further impeding domestic demand while leaving exports vulnerable to the unpredictable tariff policies of the Trump administration.
Next government in Germany without a compass
Germany stands in urgent need of measures to bolster its economy. Potential solutions include increasing public investments, which are currently stagnated at just 3% of GDP—among the lowest in Europe. Alternatively, a strategy focused on tax reductions, service liberalization, and reducing bureaucratic hurdles may also be viable. The first option would be more likely under a Social Democrat-led government, while the latter might prevail with a Christian Democrat at the helm. Unfortunately, the impending elections are expected to lead to yet another unsteady majority, reminiscent of the past Grand coalition in Merkel’s style, which has shown little resolve in tackling pressing issues, offering instead mere token gestures that provide neither direction nor substantial stimulation to economic growth.
German economy drags Eurozone into stagflation
Since the pandemic, the German economy has ceased to function as Europe’s economic engine and is now perceived more as a liability. Its ongoing decline in GDP, coupled with persistently high inflation, poses a significant risk, with the continent potentially facing a dire situation of “stagflazione.” This risk intensifies particularly if gas prices continue to hover at or exceed current levels, effectively reversing the downward trends seen a year ago. Moreover, the geopolitical landscape shows little promise of revitalization, as Europe finds itself ensnared between the policies advocated by the Biden administration and those spearheaded by Trump’s administration.
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What are the potential economic consequences for the United States if geopolitical tensions escalate in 2024?
The United States and potential fallout from geopolitical tensions.
Next Government in Germany Lacks Cohesion
Amidst this chaos, the path forward for Germany’s new government appears murky at best. The anticipated coalition—rumored to be a “Grand Coalition” similar to previous administrations—seems destined to repeat past failings. This could lead to more indecision as parties will likely struggle to align on economic strategy. The spectrum of potential reforms ranges from increased public debt to spur growth, to radical tax cuts aimed at revitalizing consumption. Yet, neither option seems particularly credible or sustainable given the current political climate.
The Broader Eurozone Impact
As Germany grapples with these challenges, the ramifications for the Eurozone are stark. The larger European Union economy is in danger of slipping into a state of stagflation—a troubling combination of stagnant growth and rising inflation. With gas prices hovering at elevated levels and geopolitical tensions threatening trade stability, the potential for a recession looms ominously. The prospects for the Eurozone are dim, with the risk of individual member states mirroring Germany’s plight, stalling any recovery efforts.
Conclusion: Uncertain Future Ahead
As we navigate these economic headwinds, the question remains: can a new German government rise to the occasion and steer the Eurozone back on course? Or will it succumb to the same old narrative of political paralysis and economic stagnation? Only time will tell, but for now, the outlook is less than optimistic. Investors and citizens alike should remain vigilant as this unfolding drama continues to shape European economic prospects. In the meantime, one can’t help but wish for a little humor amidst the madness, reminding us all that laughter may indeed be the best medicine during turbulent times.
