La Française: Quo vadis Germany?

La Française: Quo vadis Germany?

27 februari 2024

Duitsland
Duitsland

In 2023, Germany's economic output shrank, further slowing down growth in the European Union. According to the ifo forecast, a decline is also expected for the first quarter of 2024. Are the problems so structural that Europe's largest economy is becoming a permanent patient? Or are there also data and developments that speak in favour of a quick recovery?

The German economy has once again disappointed with the release of the latest growth figures and is now settling into a technical recession. Worse still, the German economy now shows zero growth over the past 4 years, even as the United States grows by 8% over the same period and Spain and Italy see their economies rebound by 4%.

The 2010s were Germany's years, with an economy resting on three pillars: exports to China and the rest of Europe, strong integration with Eastern Europe and a competitive labour market. Unfortunately, these engines are now at a standstill, with the German industrial machine suffering greatly. German car production is still 30% below pre-Covid levels and is facing fierce competition from Chinese electric vehicles.

Germany is also facing new obligations related to the Inflation Reduction Act in the United States, leading to investments being made across the Atlantic rather than in Germany. And Germany appears to be the economy most exposed to a trade war that would resume with the United States if Trump were to be re-elected.

The problems of the German economy seem to be quite structural today and partly stem from past political choices (such as the shutdown of nuclear reactors, dependence on Russian gas...) that will be difficult to reverse. A reform in the way budgetary policies are conducted appears necessary if Germany wants to have the means to achieve its economic and environmental objectives. Otherwise, we will probably have to get used to low growth from the historical engine of the eurozone.

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