Germany used to be the world’s largest exporter. Now it’s not growing. What happened?

FRANKFURT, Germany (AP) — Germany’s economy is still not growing, figures showed Friday, as the country that should be the industrial powerhouse for all of Europe struggles with high energy pricesrising financing costs and a lagging recovery of important trading partner China.

Economic output in Germany stagnated in the April to June quarter, according to the Federal Statistical Office. That follows a 0.1% decline in the first three months of the year and a 0.4% decline in the final three months of 2022 as the energy shock from Russia’s war in Ukraine echoed through Europe’s largest economy.

It comes after the Forecast of the International Monetary Fund this week that Germany would be the only major economy in the world to contract this year, even with weak economic growth around the world amid rising interest rates and the threat of rising inflation.

In Germany, the economy is plagued by several challenges. It is mainly for the long term dependence on Russian natural gas fuel industry failed when the invasion of Ukraine led to the loss of most of Moscow’s supplies and to higher costs for energy intensive industries such as metals, glass, cars and fertilizers.

Higher interest rates of the European Central Bank have weighed on construction projects that depend on loans. Meanwhile, the recovery in China, Germany’s largest trading partner, after the end of drastic COVID-19 restrictions has been less than many had hoped.

Economic performance in the second quarter was “far from satisfactory,” said Vice Chancellor and Economy Minister Robert Habeck.

He urged action on his proposal limit energy prices for industry with government help, which has resulted in skepticism in parts of the governing coalition, and more investment in future-oriented technology such as renewable energy.

“What Germany needs is a targeted investment boost and breathing space for our energy-intensive industry,” he said.

Longer-term factors such as an aging population, lagging use of digital technology in business and government, excessive bureaucratic burdens that hinder business start-ups and public construction projects, and a shortage of skilled labor have also weighed on the economy.

Still the delay does not resemble a classic recession because jobs are plentiful, with companies competing for workers and complaining about skills shortages. The unemployment rate was just 2.9% in May, well below the eurozone’s 6.5% – one of the lowest figures ever.

Carsten Brzeski, chief eurozone economist at ING, described the situation in Germany as a “slowdown”, with the economy “stuck in the twilight zone between stagnation and recession”.

He said on Friday that recent data “does not bode well for economic activity in the coming months.”

“In fact, weak purchasing power, depleted industrial order books, as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown in the US economy all argue for weak economic activity,” Brzeski said. said in a note.

Germany’s misery draws comparisons to the late 1990s, when high labor costs hampered the country’s competitiveness. A series of labor market reforms under former Chancellor Gerhard Schroeder in 2003–04 helped restore economic growth and Germany’s position as an export powerhouse selling industrial machinery and vehicles to the rest of the world.

According to the Bruegel think tank in Brussels, Germany’s $290 billion current account surplus, the broadest measure of foreign trade, was the highest in the world in 2019. It remained above 7% of GDP for six years in a row, but fell last year to 4.2%.

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