André Franzmann
E
According to data from the Federal Statistical Office, in May 2022 Germany reported its first negative balance since 1991, at just under 1 billion euros, i.e. more goods were imported than exported in terms of value. Structurally, Germany does not yet seem to have a problem with foreign trade. Looking at the figures in detail, shifts can be seen above all in those countries outside the EU from which Germany obtains energy. Within the European Union, the balance is much more positive.
An improvement of the situation hardly seems in sight if one looks at the causes of this development, first and foremost the strongly rising energy prices. For decades, Germany has benefited from Russia’s cheap gas imports – an advantage that is now being reversed.
Viewed soberly, it must be said that the developments of the last few weeks are probably only a first foretaste of what lies ahead of us in the coming years. Gas from Russia is currently no longer flowing (as of 15/09/2022) and even a resumption of gas deliveries would hardly be able to prevent Germany and other countries from plunging into a deep recession, as this seems hardly avoidable even without this horror scenario.
In the meantime, more and more experts and leading economic institutes expect the recession to last longer. For example, the Leibniz Institute for Economic Research (- 1.4%) and the Kiel Institute for the World Economy (-0.7%).
The second quarter already showed a stagnation in Germany’s economic development. The EU’s long-time draught horse is thus lagging behind countries such as Spain (+1.1 per cent) and Italy (+1.0 per cent). For the two winter quarters, most experts assume a technical recession, with the economy contracting in at least two subsequent quarters.
Looking at the causes, the energy problem already described is not the only circumstance that speaks for a recession.
In the past, a weak euro has often helped Germany, the world’s leading exporter, to boost sales abroad. Although we are seeing euro-dollar parity for the first time in over two decades, this circumstance is hardly helping us this time. Rising procurement costs for raw materials and supplies and a lack of availability, for example, of primary products from China, which seems to be stuck in the Corona permanent loop, are also pushing up the prices of products manufactured in Germany. With an increase of 45.8 percent, producer prices in August, for example, rose more than ever before in Germany’s post-war history. The biggest problem remains energy costs, which no longer make economic production possible in many areas. In the meantime, the purchase costs for electricity, gas and other energy sources are many times higher than in other countries. Competitiveness is no longer given in many areas; compared to the U.S.A. alone, which is hardly affected by price increases in the energy sector, energy costs are eight to twelve times higher. For some weeks now, the term “deindustrialisation of Germany” has been doing the rounds, i.e. there is a threat of a far-reaching relocation of production abroad as well as the abandonment of entire branches of industry accompanied by a rapidly increasing number of insolvencies.
The inflation fuelled by the entire situation gives rise to demands for significant wage increases, and the first trade unions are already calling for wage and salary increases of up to ten per cent. As early as July, Verdi advanced with demands of 9.5 per cent for Lufthansa ground staff. The wage-price spiral feared by politicians and business is becoming increasingly likely, and international competitiveness is in danger. Even if other countries have the same or similar problems, the export nation Germany is particularly hard hit.
As if all this were not enough, we are seeing an increasingly threatening shortage of skilled workers, which is causing further cost increases in the competition between companies for labour. So the low euro is only helping our exports to a limited extent this time, absolute prices are rising disproportionately.
Economic problems and the growing protectionism of countries like the USA and China with the aim of increasing domestic demand and achieving greater independence from other countries are also hitting Germany right in the gut. Especially for Germany, which is heavily dependent on exports, this development is tragic. On the one hand, weakening demand, on the other hand, a high dependence on supplies from other countries, which Germany, poor in raw materials, needs more than any other country. It’s a disaster for our national economy, which has made exports its business model like hardly any other nation.
A decline in demand is visible not only on the world markets, but also in Germany itself. For example, retail sales in June fell by 8.8 percent compared to the previous year – the biggest drop since the survey began in 1994. As expected, domestic demand is no longer a lifeline.
Further worries are caused by the initiated interest rate turnaround, which appears to be without alternative in order to get inflation under control, but which on the other hand catapults the highly indebted countries in the south of the Eurozone and thus the entire EU back towards the Euro crisis. Against the backdrop of today’s problems and increased debt, the 2009 euro crisis was probably a smaller stress test in comparison.
Even without the newly added problems, Germany is already falling further and further behind in international comparison in many disciplines. This is due to a lack of digitalisation, a transport infrastructure that is unworthy of an industrialised country, comparatively high taxes or the fact that we have world market leaders in many areas, but hardly any significant companies in future technologies.
At the same time, we afford an unprecedented welfare state and are running headlong into a pension financing problem that has been known for decades but has not been consistently addressed by any government.
Against the backdrop of this mixed situation, one must unfortunately look rather pessimistically into the future. Most forecasts show a gloomy scenario with losses of prosperity across the board.
Perhaps the German virtues, above all diligence, conscientiousness, determination and reliability, will once again help us to escape the impending downward trend. Whether “Made in Germany” or “Bye Bye Germany”, only time will tell.
