Money blog: Wealthy Britons will ‘bear the biggest burden’ in the budget, chancellor confirms | British news

By Siobhan Robbins, Europe Correspondent

They call it “the sick man of Europe” and with successive recessions looming, it looks like Germany’s economic problems will continue.

Gloomy figures suggest the economy could contract by 0.2% in 2024, a depressing reversal from the government’s previous projection of 0.3% growth for the year.

“The economic conditions are not satisfactory,” Economic Affairs Minister Robert Habeck admitted as he unveiled the latest forecasts.

If he is right, Germany will suffer its first two-year recession in more than two decades and will likely be the only G7 economy to shrink.

This comes after it was already the weakest among its major eurozone peers, with a 0.3% decline in gross domestic product (GDP) last year.

What is going wrong for the European superpower?

“The German economy is stuck in crisis. There has been no revival in economic output for more than two years,” explains Professor Timo Wollmershauser of the German IFO Institute.

“The crisis is first and foremost a structural crisis. Decarbonization, digitalization, demographic changes, the coronavirus pandemic, the energy price shock and China’s changing role in the global economy are putting pressure on established business models and forcing companies to adapt their production structures. ”, he added.

The war in Ukraine and the end of dependence on cheap Russian energy undermined one of the main pillars on which the German economy was built.

It was hit hard by the energy-intensive industry.

As energy prices begin to fall, weak global demand, geopolitical tensions and declining exports continue to take their toll.

“Half of German growth always comes from exports and if you look at what is happening in the world, you have to say that this pillar is also under attack,” Habeck said. “China is pursuing an aggressive export strategy.”

Add to this domestic political instability with infighting in the coalition government, a surge in support for the far right, the fast approaching general election, a skills shortage and long-term issues of excessive red tape and underinvestment in infrastructure, and you have the perfect recipe for slowed economic growth.

Why should you care?

Due to its size, the German economy is an important driver of economic development across the EU.

Figures from the International Monetary Fund (IMF) show that the economy in terms of GDP is approximately equal to that of Poland, Sweden, Croatia, Austria, Norway, Romania, the Czech Republic, Hungary, Finland, Slovakia and Bulgaria combined.

In short, the shock waves of the protracted economic struggle will be felt far beyond the country’s borders.

Although the government says it has worked hard to bring down inflation and interest rates, Germany remains the “most distressed” European market, according to a recent report.

The Weil European Distress Index, which uses data from 3,750 European listed companies, shows that corporate distress is at its highest level since the start of the coronavirus pandemic.

Germany’s position as a major manufacturing hub left the country particularly vulnerable, and the US election results have the potential to make conditions even more difficult.

“The potential policy changes that could follow pose further risks to the German economy,” the October Weil report warned.

“Proposed tariffs on international goods could hit the manufacturing sector hard, with the Ifo Institute predicting a 32% drop in car production, further deepening the struggles of an already vulnerable industrial base.”

Volkswagen’s recent announcement that job losses and factory closures in its German factories cannot be ruled out is another symptom of Germany’s economic problems.

Europe’s largest carmaker is under pressure due to weak European demand, competition from China, high production costs in Germany and challenges surrounding vehicle electrification.

On Friday, the company reported a decline in global deliveries over the past three months, with shipments to China, the world’s largest auto market, falling 15%.

The automotive sector accounts for around 7-8% of Germany’s GDP, so a continued decline would threaten the country’s prosperity.

As one analyst recently told the press, “When the German auto sector coughs, Germany has the flu.”

Union representatives are calling for a clear commitment to the industry, including investment in infrastructure and better working conditions to help secure skilled workers.

The government has already agreed a package that it hopes will help stimulate the economy.

Ministers say they expect a return to 1.1% growth in 2025, although some analysts are more cautious.