Published on : 15/07/2022 – 17:30
Weakened by rising energy prices and supply difficulties, Germany is wondering about the sustainability of an economic model that has long been a reference in Europe.
For several weeks, clouds have been gathering in the sky of the German economy: l’inflation reached a record level of nearly 8%, growth is slowing down and the trade balance is in the red, a first in thirty years.
According to the latest forecasts from European Commission published Thursday, July 14, German growth, long considered the locomotive of the economy of the Twenty-Seven, should only reach 1.3% in 2023, against 1.5% on average in the euro zone.
A sign that something is wrong for the world champion nation in exports, the country posted a trade deficit of one billion euros in May. Unheard of since 1991, the year that followed reunification.
After having profited for decades from cheap energy, industry, which represents almost a quarter of the country’s GDP, is now paying for its excessive dependence on russian gas. “And the fears are great that there will be no resumption of deliveries after the maintenance of the gazoduc Nord Stream 1 scheduled until July 21″, recalls Line Rifai, economy columnist at France 24.
>> War in Ukraine: Germany, Russia, Canada and the Gas Turbine of Discord
In the meantime, the energy bill is soaring: “Imports of natural gas in value more than doubled between April 2019 (…) and April 2022 and oil imports have risen by 55% over the same period. “, note Les Echos newspaper.
To save its flagship automotive or chemical companies, which are very energy-intensive (nearly a third of the gas burned in Germany is consumed by industry), the government activated at the end of June the second level of its emergency plan and does not exclude rationing for individuals.
Malfunctioning machine of globalization
While the rise in energy prices and the geopolitical context largely explain the current difficulties, Germany is also penalized by its privileged relationship with the Chinese giant.
Berlin’s leading trading partner, China represents an extraordinary outlet for its automotive sector, which generates nearly 30% of its turnover there. However, this horizon is shrinking. Chinese demand is falling, the zero-Covid strategy driving down household consumption. With only one million cars sold in April, sales fell 35.7% year on year in China. “We must diversify our international relations, including for our exports”, explained Christian Lindner, the German Minister of Finance in an interview granted to the newspaper Die Zeit.
A central cog in the globalization of the 2000s, Germany also finds itself at the forefront in the logistical chaos caused by the post-Covid-19 recovery. Supply disruptions strongly penalize its industry, used to importing low-cost components and then assembling them under the seal of “Made In Germany”. In addition to these material shortages, there are difficulties in recruiting for companies, in particular due to low unemployment and an aging population.
Rising wage demands
The German machine therefore sees the main levers of its growth seize up one after the other. Simple bad luck linked to the global context or sign of a model that has reached the end of a cycle?
“We are probably entering the beginning of a weaker period for Germany. If in the past we have always seen this country playing the role of model, it is perhaps time to have a realistic view of its strengths and its weaknesses. No one is perfect,” Achim Truger, one of the government’s economic advisers, told Archyde.com.
Especially since after decades of a policy of wage moderation allowing companies to cut costs, the demands of the German unions are becoming more and more noisy, despite raising the minimum wage scheduled for October.
In June, a large part of the German dockers in Hamburg and Bremen stopped work. More recently, the powerful German union IG Metall demanded an 8% wage increase next year for the 3.8 million workers in the industrial sector. He is now preparing to strike.
Claims coldly received by German employers who criticize a union that has become “blind to the reality of the industry”, reports the newspaper La Tribune. Here again, it is a pillar of the German model that is faltering: that of consensus, until then the guarantor of the country’s economic stability.