Bloomberg forecasts have lowered expectations of growth for Germany: why is Europe’s powerhouse in crisis?
Germany looks straight into the abyss for 2024, according to a new Bloomberg survey. Europe’s beating industrial heart is facing serious cardiac challenges, bringing the rest of the Eurozone down into recession territory.
Germany, the EU’s largest economy, already fell into a recession in June, followed soon thereafter by the Netherlands, the bloc’s fifth nation by GDP.
New data shows a 0.2% GDP drop for the quarter ending in September, being the fourth consecutive quarter of economic contraction. According to previous forecasts by the International Monetary Fund (IMF), growth should have resumed by late 2023, with a 1.4% GDP increase next year.
Unfortunately, a new Bloomberg survey of top economists shows just a 0.5% GDP growth in 2024, and a 0.4% contraction this year.
Clearly, reforms are urgently needed for the country dubbed “the Sick Man of Europe” by The Economist. “We see long-standing challenges to growth,” said IMF’s European Department deputy director Oya Celasun, “There are quite a few things that Germany must work on.”
Energy prices, immigration, infrastructure, and, most urgently of all, bureaucracy are the main areas in need of structural change. One thing points in the right direction: the German establishment knows about the challenges ahead.
Why is Germany in crisis?
Everything started going south for Germany when Russia invaded Ukraine, starting the worst energy crisis in Europe in decades. In the last 20 years, Germany enjoyed a stunning period of growth, mostly fueled by Russian gas and oil.
Moreover, China, Germany’s main export partner, is becoming increasingly more isolated on a global scale. Chinese exports and imports have declined for most of 2023 by double-digit measures.
In order for Germany to start growing again, they need to restructure their bureaucracy, allowing their businesses to refocus on new markets. China can be, at least partially, replaced with new emerging markets like Poland, India, or Mexico.
At the same time, Germany needs to quickly solve its energy shortage by finding new and reliable partners. Or, if reliable partners are not available, find many different unreliable ones.
“Prophecies of doom are inappropriate,” said German Finance Minister Christian Lindner, “Germany has an enormous turnaround potential and solid economic foundations, and we’re determined to strengthen those foundations.”
Obviously, one might think Lindner is bound by his position to say this. However, one fact remains: The Economist already dubbed Germany “The Sick Man of Europe” once. It was 1998, and in just 5 years Germany had completely turned around, becoming the powerhouse of the European economy.
