The debate over whether Germany is emerging as the 'sick man of Europe' again has picked up steam once again over the summer. In our view, the answer
The debate over whether Germany is emerging as the 'sick man of Europe' again has picked up steam once again over the summer. In our view, the answer is a resounding "yes”. However, the pandemic, war in Ukraine and inflation are not the root cause of the country's economic problems.
Weak growth, worsening sentiment, and pessimistic forecasts have brought back headlines and public discussion over one key theme over the last few months: whether Germany is once again the ‘sick man of Europe’. The Economist reintroduced the debate this summer more than two decades after its groundbreaking front page. The infamous headline certainly seems justified when looking at the current state of the German economy.More than 10 years ago, Germany was celebrating its Wirtschaftswunder 2.
To a large extent, Germany's issues are homemade. Supply chain frictions in the wake of the pandemic, the war in Ukraine and the energy crisis have only exposed these structural weaknesses. These deficiencies are the flipside of fiscal austerity and wrong policy preferences over the last decade.Eurobarometer Spring 2023 and Eurobarometer Spring 2017
Germany's low level of investment activity in recent years is evidence of the fact that the country has long rested on its functioning business model of importing cheap energy and exporting goods. While fixed capital investment in Germany grew by an average of 4.4% per year between 2010 and 2015, growth was only 3.1% between 2016 and 2022.Just like the economic growth story, the picture elsewhere in the eurozone looks quite the opposite.
The good old growth driver, exports, is also stuttering. On the one hand, China's economic weakness and the expected economic downturn in the US are a burden on German exports. If both of its main trading partners are not doing well economically, this automatically does not bode well for German trade. Secondly, the globalised world as we know it will change. This does not necessarily mean deglobalisation, but rather that trade flows will change.
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