The situation in the retail trade sector in Germany has worsened to the maximum in the last three years. This is evidenced by data published on Tuesday, February 6, by the German Institute for Economic Research Ifo.

According to the organization's survey, in January 2024, 54.4% of retailers suffered from weak consumer demand, 32.7% had difficulty finding qualified personnel, and 20.5% faced interruptions in the supply of goods, primarily from Asia. Entrepreneurs assessed the general situation in the industry as the most difficult since the spring of 2021 (at that time the country was experiencing the consequences of the coronavirus pandemic).

Similar sentiments today prevail in wholesale trade, as well as in the manufacturing, construction and service sectors in Germany, according to Ifo materials. According to experts, German business expectations for the coming months remain pessimistic, and the country's economy is "bogged down in recession."

According to the International Monetary Fund, Germany's gross domestic product fell by 0.3% in 2023. Although in 2024, IMF analysts predict the country's GDP will grow by 0.5%, experts from the Institute of German Economics IW, on the contrary, predict an additional decline of 0.5-1% for Germany.

According to IW economists, the German federal government played a decisive role in the current crisis. Moreover, the German cabinet itself also began to recognize the worsening economic problems, writes Bloomberg.

“We are no longer competitive. We are becoming poorer because we have no economic growth. We are behind,” the agency quotes the head of the German Ministry of Finance, Christian Lindner.

Note that back in 2022, Germany dropped out of the top five largest economies in the world and lost its leadership in Europe in terms of purchasing power parity, giving way to Russia. This assessment was presented by the World Bank in the summer of 2023.

  • World Bank Headquarters

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One of the main reasons for the negative trends in the German economy was the consequences of anti-Russian sanctions, in particular the cessation of purchases of energy resources from Moscow. This point of view was expressed in a conversation with RT by Vladimir Olenchenko, a senior researcher at the Center for European Studies at IMEMO RAS.

“In general, we can say that economic degradation began in Germany after the country abandoned Russian raw materials, primarily natural gas, and began importing more expensive fuel from the United States. Rising energy prices have led to higher prices for a number of goods and services for both businesses and ordinary citizens. Hence the rise in poverty, the increase in producer costs, the massive closures of enterprises, and the economic recession,” Olenchenko explained.

According to him, against the backdrop of a sharp rise in fuel costs, many industrial companies began to transfer production to other countries with cheaper energy, for example, to the United States. This, as the expert notes, was an additional blow to the German economy. Moreover, the general situation in the country was aggravated by worsening problems in agriculture, the specialist added.

“To save budget funds, the German government decided to cancel fuel subsidies for its farmers, which caused massive farmer strikes throughout the country. If agricultural producers have to purchase fuel at market prices, then the business will be forced to pass on all costs to end consumers. As a result, products will become more expensive, and their competitiveness will decrease and some companies will simply go bankrupt,” Olenchenko noted.

  • Farmers' protest in Hamburg, late January 2024

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On February 2, the German authorities approved the German budget for 2024 in the amount of about €477 billion. To cover all expenses, the government will have to borrow €39 billion. At the same time, the country’s leadership is going to allocate over €7 billion to support Ukraine.

“Berlin is one of the key donors of assistance to Kyiv, but more and more funds are required for these purposes, which also limits economic opportunities. If there is no money, then what kind of GDP growth can we even talk about,” Olenchenko added.

High stakes

It should be noted that energy sanctions against Russia provoked an increase in prices not only in Germany, but also in a number of other EU countries. Against this background, in order to curb inflation, the European Central Bank began to sharply raise interest rates from mid-2022, although before that it had kept them near zero for a long period.

Due to this tightening of monetary policy, borrowed money usually becomes more expensive for citizens and businesses. As a result, consumer and business activity weakens, which puts pressure on prices.

Although to date the rate of price growth in Germany and other European countries has slowed down, noticeably more expensive loans have seriously complicated the work of businesses and the lives of citizens. Freedom Finance Global analyst Vladimir Chernov told RT about this.

“High interest rates put pressure on entrepreneurs and are the most negative constraint on economic growth overall. Expensive loans limit the possibilities of financing the expansion or modernization of a business, and also reduce the consumer demand of the population,” the specialist noted.

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  • © Romilly Lockyer

According to the IMF, if in 2021 the eurozone economy grew by 5.6%, then in 2022 growth slowed to 3.3%, and in 2023 it was only 0.5%. Moreover, in addition to Germany, nine more EU states faced recession last year, as evidenced by materials from the European Commission. We are talking about Latvia (-0.2%), Lithuania, the Czech Republic (-0.4 each), Austria, Sweden (-0.5 each), Luxembourg (-0.6%), Hungary (-0. 7%), Ireland (-0.9%) and Estonia (-2.6%).

For comparison: Russian GDP also grew by 5.6% in 2021, and in 2022, amid external restrictions, it fell by only 1.2%, although in the West they initially predicted a collapse of 10-25%. Moreover, by the end of 2023, the indicator was able to fully recover the sanctions losses and grew by more than 4%, as previously stated by the country’s President Vladimir Putin. According to him, the economy has not only demonstrated resilience and withstood unprecedented pressure, but also continues to grow confidently.

“They predicted for us, as you know, a recession, failure, collapse, that under the pressure of sanctions we would retreat, surrender, fall apart. I would like to show a well-known gesture... They won’t succeed. And our economy is growing, unlike their economies, and today... in terms of purchasing power parity... it has become the first in Europe, the fifth in the world. And this process will increase,” Putin emphasized.