Will Germany become the sick man of Europe? .. “disastrous” economic indicators because of Russia and China
Writer Gana Rando sees the potential for Germany's economy to become the "sick man of Europe" as the policies behind the German factory's workforce falter.
After years of increasing exports to China and forging energy links with Russia, Europe's largest economy faces a catastrophic set of risks.
In an analysis published by Bloomberg News, Rando says that Germany's heavy reliance on manufacturing makes it more vulnerable than its European counterparts to war-related disruptions in Russian energy supplies and bottlenecks in the trade sector.
The result is the risk of deflation and possibly higher prices, adding pressure on already struggling consumers.
"Germany is in a catastrophic economic situation...and there is absolutely justification for concerns about its future," said Elaine Schuling, a senior economist at Dutch bank ABN AMRO.
It expects Germany's output to contract in the second quarter.
Although Bank of America Merrill Lynch and Banco Santander economists are among those who share this view, the consensus of Bloomberg economists is that there will be 0.4% growth.
The European Commission expects that only Estonia will grow slower than Germany this year - due to similar effects but because it is closer to Russia - while inflation in both countries is expected to be stronger than the 19-nation eurozone average.
For Rando, the pressure has become evident at the core of the German economy.
About 77% of manufacturers complain that shortages of materials and equipment are negatively affecting their business - more than anywhere else in Europe.
Machine manufacturers cut their production growth forecast from 4% to just 1%.
On top of the economic woes, summer travel abroad could run out of money as German consumers spend money in sunny Mediterranean countries two years after the pandemic.
Retailers may already be feeling the pain as sales fell more in April than at any other time of the year.
The head of the Confederation of German Industries, Siegfried Rosform, said last Wednesday that Russia's war against Ukraine and the impact of China's zero-Covid policy will make 2022 "extremely difficult". ...time passes quickly.”
Rando says that Germany's troubles stem from ignoring the geopolitical risks that necessitate strengthening its manufacturing base, which, along with major labor reforms, helped save the country from decline at the turn of the century.
Former German chancellor Angela Merkel and her predecessor, Gerhard Schroeder, ramped up the country's reliance on cheap energy from Russia, while encouraging companies to do business with China.
"It made Germany the best performing economy in Europe, but now there is a heavy price to pay," billionaire investor George Soros said at the Davos Economic Forum last week.
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