Germany’s economy is a ticking time bomb

10 November 2023 - 11:02

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Economic growth in Germany is stopping and the country risks falling into a deep crisis if it does not radically change its strategy.

Germany's economy is a ticking time bomb

Germany’s economy continues to send alarming signals, with a recovery that is slowing down and could be worse than expected.

The latest pessimistic message on the future of the European power came from the influential German Council of Economic Experts, according to which the country’s economy will suffer a recession in 2023, with a weak recovery next year.

The forecasts are more negative than those contained in a previous panel report in March, in which recession was not contemplated. The so-called “German economic wisemen” now estimate that the economy will contract by 0.4% this year and remain largely stagnant well into 2024.

However, the alarm about the German recovery goes far beyond expectations for GDP and industrial production in the coming months or years. The energy crisis triggered by the war in Ukraine has hit Germany more than other countries and has slowed down the manufacturing sector which represents the heart of the national economic engine.

Complicated by inflation, geopolitical tensions with China - a strategic trading partner for Berlin - the monetary policy of the ECB with the record rise in rates, European economic uncertainty, Germany has shown itself to be more vulnerable than expected could be expected. Today, its economy highlights weaknesses and shortcomings that go beyond the global crisis. For this reason, it is considered a ticking time bomb.

Why Germany’s economy may explode

The German Council of Economic Experts’ analysis expressed concern about Germany’s future, summarizing that “medium-term obstacles to growth are much more important than current economic weakness”.

The German problem, therefore, is not so much linked to the difficulties in restarting the European locomotive at such a complex time and in such a complex general economic context. All EU countries share weak growth due to high inflation, skyrocketing mortgages, and difficult credit conditions. However, in Germany, the alarm is broader and concerns the need for a change in the country system.

According to the “economic wise” report, the slowdown in growth is due to a general lack of economic dynamism and the static nature of investments, which indicate aging population, low productivity, obsolete industrial capital and the absence of young and innovative companies.

The challenges are enormous but urgent. From the energy transition to the need for raw materials for sustainable industry, up to the identification of new commercial partners and the adoption of development models that protect the environment, the German power is also called to radically change its economic strategy.

We wondered why (…) those few successful new companies that actually create growth leave Germany – [the answer is] because there are not enough funds”, explained Ulrike Malmendier, another member of the Council. The suggestion is to facilitate trans-European investments more, for example.

Beyond the issue of access to capital, the Council underlined the need to accelerate planning processes and highlighted the opportunities offered by migration and productivity-enhancing technologies such as artificial intelligence, to address the challenges of loss of productivity and the aging of the population.

The stakes are high for Germany’s economy: renew itself to grow and compete, or accelerate the internal, but also European, crisis.

Original article published on Italy 2023-11-09 13:15:49. Original title: L’economia della Germania è una bomba pronta a esplodere

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