The outlook for Berlin is getting worse. The German economy cannot recover

The German Finance Minister showed a good face in the face of a bad match

In January this year, at the World Economic Forum in Davos, Switzerland, Christian Lindner, Germany's finance minister, rejected suggestions that his country had once again become the “sick man of Europe,” explaining that the country was “a bit tired and has some problems.” He needs a cup of coffee.” The minister was asked about this because the German economy, which has long been the engine of growth in Europe, contracted by 0.3 percent last year, the weakest result among the large countries in the region. Some analysts expect zero growth this year as well. The minister also denied this, saying frankly: “I know what some of you are thinking: Germany is probably a sick man.” “Germany is not a sick man… Germany is a tired man after a short night.”

But everything indicates that the German economy is performing poorly, which is confirmed by the weak results of the domestic industry. Although German industrial results rebounded slightly in March, industrial production increased by 2.1%. Compared to February, which is more than analysts expected, but a decrease of 4.9%. Compared to last year. The German economy has not yet recovered from the losses caused by the pandemic, but it feels the sanctions imposed on Russia, with which it has strong economic relations.

The German economy is losing its competitiveness

The magnitude of the slowdown in German industry is particularly large in energy-intensive industries, such as chemical companies, metal production, glass, paper and coke. The energy crisis and cutting off gas supplies to Russia led to a decrease in production by about 15%. Compared to the period before the outbreak of war in Ukraine. Before 2022, the German economy was heavily dependent on Russian gas. Industry accounted for approximately 29 percent. Energy consumption, of which 77 percent was generated by the five energy-intensive sectors mentioned above. The main fuel was natural gas, which constituted 33%. consumption. Russia played the dominant role in the supply of blue fuel – in 2021, supplies from this direction amounted to 55%. Total consumption.

The German economy is losing its competitiveness. Cutting off cheap fuel from Russia has greatly hampered the functioning of the industry. Energy prices are still much higher than they were before the energy crisis. A significant increase in costs has a negative impact on competitiveness. A survey conducted by the German Chamber of Commerce and Industry in September 2023 showed that 43 percent of major industrial companies plan to move their operations outside Germany or are in the process of doing so. The main direction is the United States. In addition to high energy prices, frequently reported barriers include burdensome bureaucracy and a persistent shortage of qualified personnel.

The outlook is still bad

Weak demand and low competitiveness mean there is little chance of a significant recovery in the industry. The number of new orders in February reached 10.6 percent. Smaller for about a year and has remained at a lower level for more than three years. Currently, economists surveyed by Focus Economics expect output to contract by 1.2%. In 2024 after a decrease of 1.6%. a year ago. As a result, GDP growth forecasts for 2024 are pessimistic. According to the Polish Institute of Economics, leading institutes expect growth of 0.1%.

Tomasz Wiebich

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