Global Courant
Germany entered a technical recession on May 25 and economists have forecast GDP growth to stagnate for the rest of the year, painting a bleak picture for Europe’s largest economy.
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With Germany already in a technical recession, economists are forecasting GDP growth to stagnate for the rest of the year and painting a bleak picture for Europe’s largest economy.
In May, Germany’s statistics office revised its first-quarter GDP figures from zero to -0.3%, following a 0.5% contraction in the last quarter of 2022.
But a faltering gross domestic product is not the only figure suggesting that the German economy is faltering.
Here are five charts showing how Europe’s historic engine is doing.
High inflation
The Consumer Price Index measures the average change in the price of goods and services purchased by consumers and is a solid indicator of trends in monetary value.
Inflation in Germany is expected to pick up 6.4% for June, according to preliminary data from the German statistics agency, which is an increase from the 6.1% recorded for May. Despite the expected increase, the figure is still a significant drop from its near-50-year high of 8.8% in October, but remains well above the country’s 2% target.
“Inflation looks set to remain at very high levels for at least the next few months. Perhaps expect inflation to fall to some extent in the second half,” said Joachim Nagel, president of the German central bank, the Bundesbank. , told CNBC in March.
Although inflation may start to fall, the German central bank estimates that it will not reach 2% until 2025. German consumers have felt the effects of prolonged high inflation as they had to further stretch their euros, but financial pressures on households do not appear to be abating any time soon.
Interest rates
Germany’s place in the Eurozone means that interest rates are set by the European Central Bank, giving the country limited autonomy when it comes to tackling stubborn inflation.
While the government cannot necessarily control inflation, it can mitigate its impact on the German population, Sylvain Broyer, chief EMEA economist at S&P Global Ratings, told CNBC.
“What the tax authority can do in the face of high inflation is to ease the pain of inflation for the most vulnerable citizens,” he said.
The government introduced multiple help packages in 2022, designed to help Germans cope with the rising cost of living due to high inflation, including increased child benefits and one-off payments for students and retirees.
The European Central Bank has been consistently raising rates since July 2022 in an effort to bring down inflation across the region, and its key interest rate is currently at 3.5% following a further 25 basis point hike on June 15.
Energy prices
The current inflation rate can largely be attributed to high global energy prices, which resulted from pent-up pandemic demand, followed by a post-pandemic recovery. The large-scale invasion of Ukraine by Russia then caused great uncertainty in the market and caused a further price increase.
While some energy sources are starting to stabilize their pre-war prices, the energy crisis continues to hit some of Germany’s largest industries.
“Energy-intensive industrial production has been substantially reduced. The automotive sector has (also) been struggling for some time and substantial restructuring is still ahead,” Volker Wieland, endowed chair of monetary economics at Frankfurt’s Goethe University, told CNBC. .
Utility costs are still expected to rise in 2023, according to a January report by Alliance. Electricity bills are expected to rise about 35% this year, while industrial energy prices are expected to rise about 75%, the report said.
Export figures
German export unexpectedly pushed lower in May to a total of 130.5 billion euros ($142 billion), which is a 0.1% decline from April, according to preliminary data from the German statistics office. Analysts polled by Reuters had expected a 0.3% month-on-month increase after April’s export data surprised positively.
“The global rate hikes are of course also dampening demand for products from Germany,” Veronika Grimm, an economics professor at the Friedrich-Alexander-Universität Erlangen-Nürnberg, told CNBC.
But the drop in exports may not be as bad as the headlines suggest, S&P Global Ratings’ Broyer told CNBC, attributing the dip to a price effect that reflected factors such as recent lower energy costs.
“The foreign trade figures for May show that the terms of trade continue to recover. The German economy has already made up half of the trade losses over the past two years and the energy crisis,” he added.
China is Germany’s most important business partner, with those countries that have traded goods worth €298.9 billion between each other in 2022, and Germany was buoyed by China’s much-hyped, post-pandemic reopening.
But Europe’s largest economy has shown hesitation to further strengthen its trade relationship with Beijing, with Economy Minister and Vice-Chancellor Robert Habeck saying that while trade is open, Germany is not a “dumb market” and “must be careful are”.
Aging population
Germany has the largest aging population in Europe, with a growing percentage of Germans retiring, and that demographic will only grow in the coming decades.
The number of people of retirement age (67 years or older) will increase by about 4 million by the mid-2030s, according to the German statistics agencybringing the total number of retirees to at least 20 million.
The growing elderly population has increased concerns about the country’s pension system, which is “on the brink of collapse,” said Rainer Dulger, president of the Confederation of German Employers’ Associations, who spoke to the German Bilde newspaper in October.
According to the 2021 Aging Report, published by the European Commission. That is an increase of 2 percentage points over the 2019 figure and one of the highest predicted changes in the European Economic Area.
Combined with a labor shortage crisis that has prompted the country to overhaul its immigration rules to bring in more workers, and enthusiastic commitment to digitization to make the most of the workers it has, Germany’s rapidly aging population is impacting the entire country. economy.
