Germany’s Economy Crumbles: Recession Looms Large

The ‘Sick Man of Europe’ confronts its fourth economic slump as experts dissect the causes and implications.

Germany’s industrial engine is sputtering as the nation confronts its fourth consecutive economic slump, stirring fears of an impending recession as the year draws to a close. The economic woes are largely attributed to a flawed energy policy, a strong dependence on export-led manufacturing, and an overreliance on migrant labour.

According to recent data, German industrial output fell for the fourth straight month in August, with a decline of 0.2 percent compared to the preceding month. This decline was primarily led by the construction and energy sectors. The continuous drop in industrial production has raised concerns among economists about the possibility of a recession by the end of the year.

Franziska Palmas, a senior Europe economist at Capital Economics, remarked that the decline in August was “better than it looked” as it was driven by volatile components. However, she anticipates that high interest rates and falling demand will lead to a further contraction in industrial output in the months to come. This contraction, she believes, will result in a shrinkage of the German GDP in both the third and fourth quarters of this year.

Economic experts are in unison about the root causes of Germany’s economic downturn. Julian Jessop, an economics fellow at the Institute of Economic Affairs, voiced a common concern, saying, “Even the Germans agree that Germany is the sick man of Europe! This has been a theme in the local press for many years.”

The principal issues are identified as a failed energy policy, excessive dependence on export-led manufacturing, and overreliance on cheap migrant workers. These economic frailties have been harshly exposed by external factors including Russia’s invasion of Ukraine, the slowdown in China, and the loss of many foreign staff who returned home during the COVID-19 pandemic and have not returned.

The ramifications of this economic downturn are not confined within Germany’s borders. The International Monetary Fund (IMF) has projected a negative growth of 0.4 percent for Germany in 2023, the only major European nation with such a dismal forecast. Moreover, the IMF’s latest forecast also paints a bleak picture for the UK, which is expected to have the lowest economic growth among the G7 group of advanced economies next year, trailing behind Germany.

The global economy continues to battle the after-effects of the pandemic, geopolitical tensions, and inflation, with the economic slowdown in Germany being a notable chapter in this ongoing narrative. Story Source

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