Germany, the leading economy in the eurozone, points to a recession. The euro engine is seized, no fuel and urgently requires a deep repair. The confidence of German investors fell again in August and stood at the lowest levels in more than a decade, according to the ZEW analysis institute published yesterday. Germany already stagnated its gross domestic product (GDP) in the second quarter of this year and is now seeing contraction in the third and, predictably, also in the fourth.
The conclusion is very clear. "Financial market experts expect a further drop in the already weak economic growth in Germany," said Michael Schröder, researcher at ZEW and responsible for the survey, for whom high inflation and expected additional costs for heating and energy lead to a decline in private consumption. “On the contrary, expectations for the financial sector are improving due to the supposed additional increase in short-term interest rates,” he added.
Things will go a bit better for banks in the short term, but the rise in financial costs, with new interest rate hikes around the summer, will affect business investment. “The survey is at a level consistent with the economy contracting,” Andrew Kenningham, chief Europe economist at Capital Economics, told Reuters. "We now believe that a recession is inevitable in the second half of this year, as the impact of high energy prices on households and industry takes effect," he predicted.
Rains, it pours. Economy Minister Christian Lindner stated last week that the economic situation is deteriorating in Germany and the outlook is fragile. And the IMF warned a few days ago that the partial shutdown is already holding back the economy and a complete shutdown of the remaining Russian gas supply would cut GDP by almost 3% next year. The effects could be even worse if the winter is particularly cold. The official forecast of the fund for this year is that the German economy will grow by 1.2% and it still maintains an advance of 0.8% in 2023...
But the perspectives are updated, always downwards, as time progresses –autumn arrives in a month– and the great uncertainty about the gas supply does not disappear. And that undermines the morale of businessmen, who are reviewing their expansion plans, and of families, gripped by an indecipherable future and with less purchasing power due to rising prices.
At the macroeconomic level, the blow suffered by the German economy due to the rise in energy prices questions its own model, based on importing very cheap Russian gas and financing its economy with the flow of its recognized exporting power. Will you be able to do it in the future? For the time being, the geopolitical situation in which the aggression against Ukraine has placed Germany is undermining its current account balance. The surplus has gone from around 80,000 million euros last year to just 20,000 million today. And everything indicates that it will continue to decline.
As in any emergency, now everything is under review. All. As The Wall Street Journal noted yesterday, Germany plans to delay the closure of the last three nuclear power plants remaining in the country since the policy of eliminating this energy source was adopted twenty years ago. The decision, according to the aforementioned media, must be adopted in the Council of Ministers led by Olaf Scholz and then go to Parliament for a vote. The three plants were to close on December 31.
