(CN) — Germany's economy is teetering dangerously on the brink of a major recession and European and national leaders are woefully ill-equipped to halt the slide, a prominent German economist says.
For the past year, the economic data coming out of Germany — often dubbed the European Union's economic locomotive — has been dismal, and the slowdown is showing no sign of letting up for the world's fourth-largest economy.
“It's getting worse,” said Heiner Flassbeck, a German economist and former adviser to the German government and the United Nations, in a telephone interview with Courthouse News.
Industrial production is nosediving: For the year, it's down by 2.1% and off by more than 7% from its pre-pandemic level. Last month, industrial orders crashed by almost 12% from June. Retail sales are down too.
Most worrying, demand for the country's world-famous exports of cars, pharmaceuticals, chemical products and machines is shrinking, in large part due to a slowdown in China, its largest export market. As economists like to say, when world trade sneezes, Germany catches a cold.
“The third quarter will be definitely negative and nobody knows what happens afterwards,” Flassbeck said. “This is the risk. In economics, there is no rule that what goes down must go up.”
And there are troubling signs across the EU too. An index that measures the bloc's economic activity, the eurozone purchasing managers index, last month saw its biggest contraction since November 2020, when pandemic lockdowns were spreading, and one of its steepest declines ever measured.
“The whole eurozone is going into recessive territory,” Flassbeck said. “France is talking about recession coming immediately after the German recession, because France is very much dependent on Germany.”
A national relapse?
The storm clouds over Germany's economy have spawned a slew of gloomy headlines. With prices for energy and commodities soaring, middle-class Germans are telling reporters they can't afford small luxuries any more. And the poorest say they simply can't make ends meet.
Some factories have closed and talk of mass layoffs is in the air; labor strikes are common. New construction is sluggish at best. The International Monetary Fund projects Germany will be the only Group of Seven economy not to grow this year.
This economic gloom is, of course, reflected in surveys and opinion polls. German companies say they've never been this pessimistic about the country's ability to compete internationally. Two in three Germans say they want a new government. Germany is run by an odd mixture of social democrats, greens and pro-business liberals.
Adding to the angst is the steady rise in popularity of the far-right party Alternative for Germany (or Alternative für Deutschland), a development that sends shivers down the spines of many Germans. Nationally, AfD is polling at over 20%, making it the second most-favored party after the center-right Christian Democrats.
In August, the Economist magazine whipped up the debate about the malaise in Germany with a cover story that asked: “Is Germany once again the sick man of Europe?”
Its answer was affirmative — the same one it gave in 1999, when it first called Germany “the sick man of Europe.” At that time, Germany was dealing with double-digit unemployment and lackluster growth, a far gloomier picture than today.
To turn things around then, the German government slashed welfare benefits and cut wages, reforms that allowed Germany to undercut its European competitors. While those prescriptions helped Germany's economy take off, in turn they contributed to weakening the EU's other big economies like France and Italy. The eurozone has long struggled with slow growth.
Political solutions, not economic know-how
It's still unclear how Germany plans to turn things around this time, but the debates about what needs fixing are lively.
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