Prof. ST Hsieh
Director, US-China Energy Industry Forum
July 28, 2023
The attached reports ask an almost trivial question about Germany economy but ignored the root cause challenges to global economy.
- The failed hype of anti-globalization and de-coupling of global economy have damaged the economies of all global export powerhouses, not just the Germany economy. The impact of the new slogan de-risking is very uncertain.
- The proxy war in Ukraine is unravelling with no end in sight. The argument that Germany economy, like many EU nations, suffers now because of the past over-dependence of energy export from Russia is not reasonable at all. The Ukraine war has cutoff Russian energy exports already and EU economy is suffering! There is no feasible plan B for ensuring energy security in Europe.
- The proxy war in Ukraine has divided the geopolitics and partitioned global economy. The war has the risk of escalating but there are no serious peace-making efforts. It is not only the Germany economy will be under stress, but also the global economy under stress. Thus, the world is unstable!
Germany used to be the world’s export powerhouse. Now, it’s not growing. What happened?
Updated Fri, July 28, 2023 at 4:45 AM PDT
FRANKFURT, Germany (AP) — The German economy is still failing to grow, figures showed Friday, as the country that should be the industrial powerhouse for all of Europe struggles with high energy prices, rising borrowing costs and a lagging rebound from key trading partner China.
Economic output in Germany stagnated in the April-to-June quarter, the Federal Statistics Office said. That follows a decline of 0.1% in the first three months of the year and a drop of 0.4% in the last three months of 2022 as the energy shock from Russia’s war in Ukraine echoed through Europe’s largest economy.
It comes after the International Monetary Fund forecast this week that Germany would be the globe’s only major economy to shrink this year, even with weak economic growth around the world amid rising interest rates and the threat of growing inflation.
In Germany, the economy has been buffeted by several challenges. Above all, its long-term dependence on Russian natural gas to fuel industry backfired when the invasion of Ukraine led to the loss of most of Moscow’s supply and to higher costs for energy-intensive industries such as metals, glass, cars and fertilizer.
Higher interest rates from the European Central Bank have weighed on construction projects that depend on borrowing. Meanwhile, the rebound in China, Germany’s largest trade partner, after the end of drastic COVID-19 restrictions has been less than many had hoped for.
The second-quarter economic performance was “far from satisfactory,” said Vice Chancellor and Economy Minister Robert Habeck.
He urged action on his proposal to cap energy prices for industry with government help, which has run into skepticism in parts of the governing coalition, and more investment in future-oriented technology such as renewable energy.
“What Germany needs is a targeted impulse for investment and breathing room for our energy-intensive industry,” he said.
Yet the slowdown does not resemble a classic recession because jobs are abundant, with companies competing for workers and complaining of skills shortages. The unemployment rate was only 2.9% in May, well below the eurozone’s 6.5% — one of the lowest rates on record.
Carsten Brzeski, chief eurozone economist at ING, has described Germany’s situation as a “slowcession,” with the economy “stuck in the twilight zone between stagnation and recession.”
He said Friday that recent data “do not bode well for economic activity in the coming months.”
“In fact, weak purchasing power, thinned-out industrial order books, as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the U.S. economy, all argue in favor of weak economic activity,” Brzeski said in a note.
German economy faces ‘prolonged’ downturn amid manufacturing slump
Fri, July 28, 2023 at 4:54 AM PDT
The German economy stagnated in the three months to June, prompting warnings that the industrial powerhouse is facing a prolonged downturn.
Europe’s largest economy flatlined in the second quarter of the year, according to the country’s statistics office. This compares with quarterly growth of 0.5pc in France and 0.4pc in Spain over the same period.
While the figures for Germany officially mark the end of a recession that saw six months of economic decline, Claus Vistesen, of Pantheon Macroeconomics, predicted the economy would continue to lag behind the rest of Europe.
He said: “Germany is really, really weak here. We are looking into a prolonged slowdown. Unless something really dramatic happens, Germany’s GDP is going to fall outright this year. That is pretty bad.”
The International Monetary Fund (IMF) warned this week that Germany will be the worst-performing major economy in the world this year as the manufacturing sector remains under pressure.
Mr Vistesen said the country’s former dependency on Russia for gas made it vulnerable to the energy crunch triggered by the Kremlin’s invasion of Ukraine. He said China’s underwhelming recovery was also bad news for exports.
Carsten Brzeski, of ING, warned that Germany was “stuck in the twilight zone between stagnation and recession”.
He said: “Recently released sentiment indicators do not bode well for economic activity in the coming months. In fact, weak purchasing power, thinned-out industrial order books, as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the US economy, all argue in favour of weak economic activity.
“On top of these cyclical factors, the ongoing war in Ukraine, demographic changes, and the current energy transition will structurally weigh on the German economy in the coming years.”
By contrast, the French economy accelerated sharply, growing by 0.5pc in the second quarter, up from 0.1pc in the first, according to the country’s national statistics agency.
Exports boosted growth, with the agency singling out the delivery of a cruise ship as a particularly significant sale.
French inflation also eased to 5pc in July, down from 5.3pc in the year to June to its lowest level since last February.
At the same time the Spanish economy grew by 0.4pc in the three months to June, driven by rising consumer spending and inflation, though it slowed a touch from 0.5pc in the first quarter.
Adrian Prettejohn, of Capital Economics, said the growth figures suggested the eurozone had coped “much better than feared” with higher interest rates.
But he added: “We still think that high rates will increasingly weigh on economic activity in the rest of the year.”