All’s Not Well With The German Economy!

It was the last quarter of 2022, so basically the previous year was far from over. But the rumors were no longer rumours and were, in fact, true. It was being suggested that all was not well with the German economy.

There was a reason to doubt as to what was going on after all. It was reported that the German industrial machine was sputtering as one publication called it. The electricity cost was up by as much as 600 per cent. You read that right.

But one could sense further trouble when it became clear that the inflation was at a 73-year high.

Worse still; they said that come 2023 and the German economy could well slide into recession or very nearly so.

And here we are. January, i.e., the first month of a brand new year is still yet to be over but there are ominous signs about the economy already.

The inflation coupled with the energy crisis that dominated headlines albeit sporadically for much of 2022 have led the country to a position where it’s being said that the economic growth is waning.

The worst fears are being realized in that what happened to the stagnation of the economic growth during 2022 Q2 is again going on a repeat mode.

That being said, if one is to believe the word being carried out by Reuters of all publications, then the following is true:

The German economy unexpectedly shrank in the fourth quarter, data showed on Monday, a sign that Europe’s largest economy may be entering a much-predicted recession, though likely a shallower one than originally feared.

Gross domestic product decreased 0.2% quarter on quarter in adjusted terms, the federal statistics office said. A Reuters poll of analysts had forecast the economy would stagnate.

In the previous quarter, the German economy grew by an upwardly revised 0.5% versus the previous three months.

All of that told, it is believed that the worst could yet not be over as a looming crisis surrounding a stagnation in economic growth could stick around in what’s to come.

Which means that no longer is the economic output sluggish but afflicted with a constant state of contraction; the longer it lasts, the more Germany’s chances of sliding into a state of recession.

But some experts and economists argue that a long term solution for the number one economy of Europe (yes, it still is) could be achieved by a combination of the following factors:

There must be renewed focus on attracting foreign high-skilled labour

The Olaf Scholz-led nation has to focus on a combination of- technology penetration, competitiveness and productivity

That said, the purists suggest that gone are the days of only depending on homegrown talent to work in what is essentially a large industrial complex. The easy supply of high-skilled labour is over and one needs to find more ideas on making a highly-competitive workforce; Germany needs to treat towards the path of what is being described as economic openness.

Some of the above must be realised in real terms unless the following red flags raised by an economic expert from ING may just continue to deride Europe’s strongman:

Industrial orders have also weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historic lows, and the loss of purchasing power will continue in 2023.