A swirl of stormy economic clouds are gathering over Europe's powerhouse, Germany, painting a gloomy forecast for the final quarter of the year. The cheery summer days of the same level of economic growth and contraction have faded into a chilly autumnal reality of an inevitable shrink in the economy.
The month of November began with the ominous pronouncement from Germany's central bank, the Bundesbank - a rather unwelcome harbinger. Germany, they said, is likely to watch its economy decline again in the fourth quarter of 2023. The culprits? None other than industry and construction performances that have proved far too feeble to keep the economy afloat.
Indeed, it’s as if the German economy is teetering on the edge of an icy fiscal cliff – two consecutive quarters of contraction, traditionally seen as the chilling threshold of recession, loom ominously. Even so, economists in the eurozone consider a wider landscape of data before sounding the recession alarm bell, encompassing factors like employment figures.
Now, here's a sobering factoid: Germany stands alone as the only major economy that's predicted to shrink this year, at least according to the International Monetary Fund (IMF). A drop of 0.5% is envisaged by the IMF, a prediction that somewhat overshadows the modest decline of 0.4% forecasted by the German government.
Laying heavy on Germany's economic shoulders are high energy prices, the worldwide weakening of the global economy, and inflation-tackling interest rate hikes. As if these burdens weren't enough, they have lately been compounded by a home-grown budgetary crisis that has forced the government into a frenzy of financial maneouvres: scaling back subsidies, trimming spending, all in a bid to adhere to their own stern rules on debt.
However, Germany's challenges aren't all imported – some are born and bred at home. An aging population, a less-than-impressive adoption of digital technology in businesses and government, copious red tape stalling the launch of new businesses and public construction projects, and a talent pool lacking the necessary skills.
In a seemingly damning seal to the gloomy forecast, the Ifo Institute noted a drop in its hard-to-ignore business confidence survey, defying economists' hopeful predictions of a marginal rise. The outlook for the next six months has also dampened business managers' spirits.
As ING economist Carsten Brzeski eloquently summed up, “The fiscal woes of the last month have clearly left their mark on the German economy…”, casting a long shadow over Germany's chances of an economic bounce-back. Stormy days indeed. Telescope or not, it's easy to see that navigating the economic seas in the coming months will be no small feat for Germany. But one thing is sure - all eyes are watching, waiting to see how Germany weathers this storm.
