Quick Bites | The world’s 4th largest economy floundering

News released last week revealed that Germany’s GDP numbers for 2023 came in negative at -0.3%. German output contracted last year as high inflation, rising interest rates and elevated energy costs made Europe’s largest economy one of the weakest performers in the world. As expected, the decline was driven primarily by a decline in industry (-2%) and household consumption (-0.8%).

Source: MacroVisor


Overall economic development faltered in Germany in 2023 in an environment that continues to be marked by multiple crises. Despite recent price declines, prices remained high at all stages in the economic process and put a damper on economic growth. Unfavourable financing conditions due to rising interest rates and weaker domestic and foreign demand also took their toll. Unlike countries like the US, the German economy did not continue its recovery from the sharp economic slump experienced in the pandemic year of 2020, although Germany’s GDP was 0.7% higher in 2023 than in 2019, the year before the COVID-19 pandemic hit.

Germany was the worst-performing major economy in the world last year, according to the International Monetary Fund (IMF), which recently forecasted that advanced economies would grow 1.5% on average in 2023 while emerging market and developing economies expanded 4%.

The IMF forecast that the US economy grew 2.1% last year, while the eurozone expanded 0.7% and the UK 0.5%. That underlines how Germany’s big export-focused manufacturing sector has been hit by the loss of cheap Russian energy and the slowdown in demand from China.

Germany is feeling the loss of Angela Merkel. Her successor, Olaf Scholz, is an unimpressive leader who is all but invisible at a time when Europe is crying out for strong leadership. Consequently, while the European economy stagnates, the extreme right wing of politics climbs in the opinion polls, Putin’s rockets rain down on Ukraine, and Germany is like a deer in the headlights. Scholz’s Social Democrats are only the third-most-popular party in Germany, with a paltry 15% level of support. Most of his time has to be spent propping up his rickety three-way coalition.



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